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FEBRUARY 2014

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

AFRICA
Local investors joining in

AGRICULTURE
At the root of
food security

FIRE
Risks growing

MOBILE 3.0
m-commerce for Africa
STILL A GIANT! SA economy in review

OFC_landscape.indd 1 2014/02/04 10:58 PM


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Astronauts.indd 2 2013/03/02 11:05 AM


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25 YEARS OF INDUSTRY INTELLIGENCE

CONTENTS
COVER FEBRUARY 2014
08

FEBRUARY 2014

SHORT-TERM
Industry intelligence to nancial professionals www.cover.co.za

Santam on understanding insurance policies 18


AFRICA
Local investors joining in Pricing goods in transit 36
AGRICULTURE Gut feel underwriting still possible? 38
At the root of
food security Madupi, Tongaat: Construction guarantees 40
FIRE
Risks growing
Commodities and recall liability 42
Cycle insurance peddles forward 46
STILL A GIANT! SA economy in review
MOBILE 3.0
m-commerce for Africa Discovery Insures Anton Ossip has Coffee with COVER 48

OFC_landscape.indd 1 2014/02/04 10:58 PM

ON THE COVER FINANCIAL PLANNING


Advisory business according to Angela Mhlanga 20
Is the AIDS-fight won? 44
Fed speak turns to Fed action 54
AGRI INSURANCE SPOTLIGHT 8 What can we expect globally in 2014? 56
It seems like neither the consumer, nor government realises the serious Five retirement steps to share 58
threat to our food security that lurks in the wings. Maybe the huge Multi-asset funds on the rise 59
pressure on the rand will highlight the large amount of food that South When taking the profits means loss 60
Africa needs to import annually, much of which is due to challenges
faced by farmers. Insurance cannot solve all these problems, but Does size matter in asset management? 61
drought, hail and flood relief, for example, are areas where insurance can The basics of quantitative management 64
significantly restore food security. The positives of state pension plans 65
The real story of QE 86

MOBILE COMMERCE IN PERSPECTIVE 22


Over the past five years, mobile commerce and especially payment
systems have made a huge impact in the developing world. So much
so, that Africa is the front-runner in global m-commerce adoption. The
figures are fascinating.
WORKING WITH WHEELS
Bad drivers and premiums 26
Tweeting and driving you can, but should you? 27
Global telematics 28
SA TOP OF THE CHARTS IN GLOBAL FIRE RISK 32 Fraud on the road: towing the line 29
As with most bad statistics, Sub-Saharan Africa is top of the pile for E-tolls and fleet managers 30
frequency of fires. Somehow, we manage to top the charts due to bad The confusion of street names 31
management of risks and even worse fire protection services. The problem Accidents hit the economy as a whole 50
is that, according to Karen Miller of Mutual & Federal, the severity has
increased significantly.

RISK MANAGEMENT
SA ECONOMY IN A NUTSHELL 78
South African economics 101: What made it tick in 2013 and what slowed Evolution of a Risk Manager 68
us down? COFACE evaluates the fundamentals that drove the economy
and provides an opinion on what will be holding us back in 2014. Point by Tongaat building collapse 69
point, this article makes it understandable. Supply chain risk management 70

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

February 2014.indd 2 2014/02/11 12:16 PM


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22 32

EDITOR
Tony van Niekerk
ASSOCIATIONS tony@cover.co.za

INSETA and burial societies 75 EDITORIAL


Pension Fund Adjudicator 76 Annetjie van Wynegaard
FIA: The value of good advice 77 annetjie@cover.co.za

Taryn Kerr
taryn@cover.co.za

ADVERTISING & MARKETING


GOVERNANCE Hermione Ballinger
hermione@cover.co.za
Affordable business compliance 72
EDITORIAL, ADVERTISING & MARKETING
Thenjiwe Roda
thenjiwe@cover.co.za

ADMIN & SUBS


LEGAL Brent Munnik
brent@cover.co.za

Divorce and pension interest 74 LAYOUT & GRAPHIC DESIGN


Wesley Chipps
wesley@cover.co.za

Publisher
AFRICA RISING COVER Publications

Street address
South Africa in review step by step 78 80 Devilliers Way,
Sanlam moves into Africa 81 Glencairn, Cape Town
Proudly South African 82
SA investors choose Africa 84 Postal address
P O Box 2030
Sun Valley, 7985

Telephone (083) 567-0757


Fax (086) 642 6263
E-mail: info@cover.co.za
REGULAR Website: www.cover.co.za

Editorial 6 Images: 123rf.com; istockphoto.com


& shutterstock.com
Events 87
Product Development 94 Editorial Board
Market cover 95 Peter Atkinson, Seamus Casserly,
People on the move 96 Mike Duncan, Ronald Gordon, Mark Haken,
Jonty Kirkman, Baravand Madhav,
Rod Pearson, Colin Travers.

Advisory Committee
Carel Nolte, Viviene Pearson, Kalim Rajab

The Editorial Board serves in a voluntary and


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

See our Facebook page


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

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

February 2014.indd 4 2014/02/04 11:43 PM


Untitled-1 1 2014/02/04 11:20 PM
Editorial
Tony van Niekerk Editor-in-Chief

Competition
to the strengths of your team. You only monitor your
competitions game to ensure you know what to expect
from them and to learn from them.

is not a chase Secondly, public relations and communications have two


main goals, to grow the brand and to increase business
simple!

PR is not about protecting the brand or the leadership


It is with great interest that I followed the of the team, it is about using every opportunity to the
developments over the five days preceding the advantage of the business.
writing of this editorial. Five days that went from When announcing a big deal, or launching a new product,
the wedding between the DA and Agang to the whether as a company or a sales manager, anticipate
honeymoon, and finally to the rapid divorce, with future challenges and opportunities created by the current
win. The deal might go south, the book of business might
the obligatory mudslinging. reveal big flaws down the line, the product might fail or
the merger might not be the big victory you hoped for. By
It reminds me of the challenges big corporates and sales managing expectations from the start, you lower the risk
management in financial services face, especially the of brand damage if things do fall apart.
insurance industry, when competing with other companies
or teams. There is always the pressure to sign the next big In the DA/Agang drama, the DA could have scored
deal, to land that major client, to bring a large book across major points, even if the deal went south. At the initial
or to attract that star salesman. This pressure increases announcement, the DA should have focussed on what
dramatically when year-end looms, or, in the case of their brand stands for delivery. They should have
politics, when Election Day is close. communicated the risk of entering into this venture, but
under the banner of realising the need for transformation
My years in business development and sales management to ensure continued solid delivery. They should have
have taught me that you have to chase those deals and communicated that this was a deal done in a short time,
pursue those books. The DA and Helen Zille, competing given the urgency of transformation in our country. When
against the ANC, had to make the move on Agang and failure came, they could have strengthened the brand by
Ramphele. However, there are certain fundamentals to the simply stating that their demands are high, that they are
art of successful competition one relates to strategy and ruthless in their requirements for effective delivery and
the other to brand and communications. that the deal showed flaws leading them to terminate
it, even in the face of certain flack. The message should
Firstly, when it comes to strategy, it is essential never to have been that for the DA delivery is more important than
fall into the trap of chasing your competition. This trap saving face. Yet, they only said what they thought would
leads to the habit of following every move made by your protect the brand and silence the competition. Their brand
competition and trying to counter or emulate it. The suffered.
danger is that you take your eyes off your own game
and you try to play your competitors game. Every good Strategically communicating your strategy is as important
sportsman knows that you play your game according as delivering on that strategy.

6 COVER FEBRUARY 2014

February 2014.indd 6 2014/02/04 11:21 PM


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Agriculture

Our future is linked


to agriculture
The recent droughts in the North West province have again emphasised the fact that farmers need
support from government and insurance. However, governmental wheels turn slowly and reliance on
assistance from that source will most certainly not ensure food security. After our Agri Round Table
last year, we decided to obtain a variety of comments on this pressing issue. For video footage of the
discussion at the COVER Agri Round Table, please visit our website: http://bit.ly/1fowbDy

Agri Insurance is
Government is starting a land reform
programme that will see the birth
of an emerging farming community.

everybodys business
Government needs to recognise the
importance of agriculture for food
security and creating stability in the
socio-economic sphere. By working
COVER spoke to Lovemore with the farming community to
disseminating prudent agricultural create resilience, and the insurance
Forichi, Senior Underwriter: practices through extension services, industry to protect the farmers
Agriculture for Africa at Swiss Re, and participating in one form or capital, the government will create a
about Agricultural Insurance in another in the risk transfer framework. sustainable agricultural industry in the
The insurance sector then comes country, especially for small holder
South Africa. or emerging farmers who are by and
in and protects the farmers capital
through sustainable insurance product large underserviced today, and have no
With food security a global topical capital reserves.
offerings.
issue, there is need for all stakeholders
in the agricultural value chain to In the past three years South Africa Agricultural insurance providers played
play their part to ensure resilient and has experienced severe hail, drought, their part from a product offering
sustainable agricultural production, excessive rainfall, heat waves and point of view. By adopting a diagnostic
said Forichi. Farmers need to stay frost. Hail has been more widespread approach, Swiss Re identified the
on the farm and produce crops in compared to the past when these need to take steps to improve the
a sustainable manner by employing events would normally be more sustainability of the insurance and
risk mitigation measures that ensure localised. reinsurance market. This will involve
minimum production interruption. putting in place corrective measures
The government can do a lot in terms AGRI CONTRIBUTION and getting the market to revisit its
of promoting resilience in agriculture Agriculture contributes towards 2,6% approach to insurance products, terms,
through enabling policy frameworks, of South Africas GDP and around 10% conditions and practices, and how
investment in conservation agriculture, of the formal employment (FAOSTAT). business is conducted.

8 COVER FEBRUARY 2014

February 2014.indd 8 2014/02/04 11:45 PM


Insurers absorb normal volatility. the resilient, sustainable risk transfer
However, when volatility becomes framework, the government can do the
chronic checks and balances have following:
to be employed to make sure that
the insurance product offering is Set up a project management team to
more sustainable for the benefit ensure alignment of interests between
of both the farming community, farmers, insurers and the state;
and the insurance industry. Swiss
Facilitate within the ministry of
Re supports the local market
agriculture and finance to deploy
with its analytical and actuarial
dedicated people for such a project;
capacity to do so.
Give financial support to fund a part
Currently, the Agricultural
of the insurance premium; and
ABOUT SUSTAINABILITY Insurance Committee of SAIA
The need for agricultural insurance in is engaging the government and the Ensure sustainability of the project
South Africa is unquestionable. When farming community in a lobby process to outcome through strict monitoring
disaster strikes the insurer compensates create a Public Private Partnership similar and evaluation.
the farmer, who then doesnt need to to that in countries such as Turkey,
liquidate assets to remain in business. Spain, Canada, China, or the United South Africas vast geographical
Insurance keeps the farmer on the States. South Africa can adapt a system distribution of crops and different
land producing crops, maintaining that best suits the local situation. climate experiences calls for more
employment and contributing to socio- prudent risk analysis, risk selection
economic welfare. Additionally, farmers Well-established commercial and appropriate insurance product
can use insurance as collateral when enterprises should work with emerging offering. We need to look at the best
approaching financial institutions for farmers to support government way of doing this correctly, while also
loans for agricultural inputs, and use efforts. In order to make sure that the respecting local culture, concluded
their capital reserves for other projects. broader farming sector is included in Forichi.

Working together THAMI GXABHU,


Product Underwriter,

towards new growth Zurich Insurance Company South Africa

Farming remains important for Protecting this sector is critical to Growth opportunities for both
transforming the economy, increasing commercial and small scale farmers
the growth of South Africas
gross domestic product (GDP), and are increasing, along with capacity
economy and job creation. spurring growth, reducing poverty in the insurance industry to meet
and contributing to sustainability, the demand for niche cover. Global
Approximately 639 000 people are
eco-tourism and food security. insurers with a local footprint, such
formally employed in the sector
Collaboration between the insurance as Zurich South Africa, have access to
(Statistics SA, 2012 Q2), and an
sector and government therefore a network of experts with specialised
estimated 8,5 million people are directly
becomes essential regulation and knowledge in the field of agriculture
or indirectly dependent on agriculture
policies need to be structured to that are able to demonstrate a
for their employment and income. In
ensure a viable economic environment, deep understanding of the unique
addition, the agricultural sector features
while ensuring investment in critical challenges farmers face, responding
strongly in the governments New
areas like capacity building, risk with tailored solutions.
Growth Path (NGP), which aims to
create five million new jobs by 2020, management, skills development and
The insurance industry needs to
promote commercially oriented small- employment. Government must also be
establish propositions that work
scale farming and support smallholders able to assist through subsidising food
towards creating a sustainable
on land acquired through land reform. production costs, supporting farming
agricultural environment that
projects and driving development
benefits producers (small scale and
Food security remains critical to the programmes. At the same time,
commercial), the market in general and
country and the continent farmers agri-insurance must ensure that risks
the country as a whole.
will need to double their production associated with agriculture covering
efforts to ensure sufficient supply of everything from property, livestock, One way to achieve this is through
produce to meet growing demand. disease, equipment and irrigation a sustainable risk management
In fact, it was recently stated at the systems etc can be mitigated. This environment supported by a
Third Global Conference on Agriculture, type of insurance serves as an effective collaborative structure.
Food Security and Climate Change that transfer mechanism that can assist
sub-Saharan Africa will need 360% of farmers in achieving their farming and
2006s food production by 2050. business objectives.

COVER FEBRUARY 2014 9

February 2014.indd 9 2014/02/04 11:45 PM


Agriculture

When disaster strikes


keeping small farmers safe

THE HEALTH OF THE


AGRI-INSURANCE MARKET
IS RELATED TO THE WELL-
BEING AND CIRCUMSTANCES
OF AGRICULTURE ITSELF.

insurance. We develop brokers and


intermediaries to support and service
farmers. We are working closely with
the South African Insurance Association
(SAIA) on this initiative of disaster
cover.
Farming is a risky business. in South Africa relate largely to smaller
scale operations, where uptake follows The company engages with the
South Africas extreme weather the patterns of the domestic insurance government as a member of the
affects harvests from drought market. Where any form of financing is Agricultural Business Chamber towards
in the North West province to involved, insurance is a requirement and a common goal a successful and
becomes a forced purchase.
floods in the Western Cape. sustainable agriculture community.
However, as much as 70% of the The health of the Agri Insurance Farmers are still dependant on private
market is related to the well-being sector companies to help manage
R1 billion crops market in South risk. To remain sustainable, it is
and circumstances of agriculture itself.
Africa remains uninsured. While agriculture in South Africa important to partner with a broker
remains inherently healthy, smaller and insurer that understands the risks
When it comes to the R1 billion market farmers are pressured to compete with inherent in agriculture and will provide
for crop insurance and the R4 billion large operations. This results in farmers solutions to meet specific insurance
market for asset insurance, Mutual reducing running costs like herds, asset requirements.
& Federal is one of the top three bases and expenses such as insurance,
insurers, along with Santam and ABSA. limiting the level of value chain
Approximately 18 insurance companies involvement for insurers.
operate in this market, with the major
players insuring 70% of the market. Farmers need a better understanding
of the critical role that insurance plays
Agri Insurers serve a diverse farming in basic management practices. Mutual
community that consists of large & Federal places strong emphasis on
corporations, general farmers and small financial education initiatives, teaching
scale farmers. There are approximately farmers the value of insurance, and
supporting agricultural schools.
35 000 farms versus 80 000 farms
in the 1970s, due to consolidation The insurance industrys challenge
rather than a reduction of farming is to come up with feasible product
activities. There is a move towards solutions for various risks, including
scale and combining efforts, with fewer livestock risks, geared to the specific
operations supplying more. needs of these farmers.
ANDRIES WIESE
Larger commercial operations tend to be Mutual & Federals strong new market Manager: Market
well covered for basic needs, particularly focus on tailored product development Intelligence & Marketing,
assets. The high levels of underinsurance goes further than traditional asset Mutual & Federal Agri

10 COVER FEBRUARY 2014

February 2014.indd 10 2014/02/04 11:45 PM


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Untitled-1 1 2014/02/04 11:46 PM


Agriculture

Agriculture sector
calls out for support
ROLE OF THE FARMER AND THE
IMPORTANCE OF RISK MITIGATION
Weather-related changes will affect the
pricing and terms on which insurance
cover can be provided. The extent of
such impact will be determined by
farmers response to adapting to and
mitigating their risks and exposures.
It is going to be important for farmers
and the agriculture community as a
whole, including insurers, to reassess
and develop risk management in the
sector. Sound underwriting is important
for ensuring the agriculture sector
remains sustainable.

Santam believes that it is vital for


the government to form a stronger
partnership with the insurance industry
to ensure the sustainability of the
countrys agricultural sector.

The insurance industry, farmers and


the government have a crucial role
to play in the agriculture market and
Farmers face a daunting year in THE DEMAND FOR FOOD IN must stand together and support each
other. Santam is committed to stand
2014, with continuing drought in SOUTH AFRICA HAS INCREASED
by farmers in these challenging times,
some areas, changes in weather SUBSTANTIALLY IN THE PAST DECADE to build on the importance of crop
patterns, the probability of AND IS EXPECTED TO CONTINUE... insurance and to achieve sustainability
in the agricultural sector.
legislative changes and ongoing
land reform initiatives, the
unrelenting electricity and power
crisis, and simmering labour
unrest. driven by a growth in population and a
rise in consumer spending power.
The agriculture sector is already hard-
hit financially, leading a large reinsurer Commercial farmers have faced
to withdraw from the crop insurance tough times in the past and continue
market in 2013, although Santam has to be exposed to risks. In addition
declared its continued support for to the challenge of supplying more
farmers. food with less arable land at their
disposal, farmers still face the ever-
The knock-on effect of these present issues such as volatile prices
challenges is that there is a real and extreme weather conditions and
concern about whether the country can are becoming unable to plan for such
continue to enjoy stable food security, unpredictable events.
with current media reports already
questioning whether farmers can Food security highlights the importance
produce sufficient food for the nation. of insurance in the agriculture sector,
as effective risk management through
THE FOOD SECURITY CHALLENGE adequate crop and asset insurance
The demand for food in South Africa is crucial, especially for large-scale
has increased substantially in the past farmers, who need to continue GERHARD DIEDERICKS
Head of Santam Agriculture
decade and is expected to continue, operations despite losses and setbacks.

12 COVER FEBRUARY 2014

February 2014.indd 12 2014/02/04 11:47 PM


25
Years

Untitled-1 1 2014/02/04 11:47 PM


Agriculture

Consider the farmers


unique needs
GERT HENNING
Managing Director
Landmark Underwriting Agency

term sustainability and profitability of


grain production. Add in high electricity
prices and the possibility of load
shedding, and irrigation farmers are
struggling even more.

The lack of or unavailability of


production credit, and high input costs,
are central to the sustainability of
farming, and government assistance
should be focused here.

The agricultural short-term insurance


market consists of the traditional Agri
Assets Insurance and Crop Insurance.
Losses caused by unseasonal snow,
excessive rain, drought and hail storms,
with tornadoes in certain regions,
have hit Agri Insurers hard the past
WHAT ARE YOUR CURRENT VIEWS According to Steytler, South Africa three years.
ON AGRI INSURANCE IN SOUTH could face a shortage of maize next
AFRICA? year, and maize producers are finding Another major concern is the
Grain SA Chairperson Louw Steytlers it difficult to get production credit. deterioration of road infrastructure in
comments on maize production in He believes that high input costs and agricultural regions, causing loss of life
2013 are an appropriate starting point drought in the western production and damage to vehicles from potholes
for this discussion. region are compromising the long- and other road irregularities.

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Untitled-1 1 2014/02/06 7:10 PM


Agriculture

HOW DO WE ENSURE THE than the safekeeping of assets, most IN THE INTERIM, HOW DO WE
SUSTAINABILITY OF THE farmers need guidance on possible INVOLVE A BROADER SEGMENT
FARMING COMMUNITY THROUGH liabilities that could attach through OF THE FARMING COMMUNITY,
INSURANCE PROVISION? their unique farming operations. ESPECIALLY SMALL AND MICRO
The sustainability of our farming FARMERS?
community is directly linked to the HOW DO WE ENCOURAGE THE A well-defined structured approach is
correct insurance product for the GOVERNMENT TO ADOPT A MORE needed, involving a broader segment
specific farmers needs. SERIOUS APPROACH, WITH INTENT of the farming community, in financing,
TO CO-OPERATE WITH FARMERS training and insurance products
AND THE INSURANCE INDUSTRY? catering for farmers specific needs.
We accept that the government is
AN AGRICULTURAL INSURANCE Landmark is a specialist Insurance
serious in its approach to farmers and
BROKER MUST CONSIDER ALL the supporting insurance industry. Underwriter, underwritten by Compass
ASPECTS WHEN SETTING UP However, the strategy seems Insurance Company Ltd
CORRECT INSURANCE COVER fragmented and uncoordinated, with
insufficient communication and media
FOR THE FARMER.
coverage on what plans entail, what
has been achieved and what goals
have not transpired, and reasons for
The number of commercial farmers has
decreased, the scale of the remaining this.
commercial farmers has increased, and
WHERE IS THE TAKE-UP FOR AGRI
farmers have diversified to ensure their
INSURANCE?
sustainability.
Agricultural Insurance must understand
Each case is unique to the insureds the ever-changing need of the farming
needs and requirements. An agricultural community and specific farmers. An
insurance broker must consider all analysis of the farming operation
aspects when setting up correct should consider all aspects of potential
insurance cover for the farmer. Other risks and how to manage these risks.

Protecting
GENERAL LIABILITY INSURANCE
AGRICHEM LIABILITY
BROADFORM LIABILITY

your
COMMERCIAL LIABILITY TOP-UP
EVENTS LIABILITY

reputation
EXCESS LAYERS AND UMBRELLA COVERS
GENERAL PUBLIC LIABILITY
MOTOR FLEET THIRD PARTY LIABILITY
PERSONAL LIABILITY TOP-UP (XOL AND UMBRELLA)
PRODUCTS LIABILITY
WAREHOUSEMENS AND CARRIERS LIABILITY

PROFESSIONAL INDEMNITY
ARCHITECTS
ATTORNEYS
BUILT ENVIRONMENT PROFESSIONALS
CHARTERED ACCOUNTANTS
COMPUTER INDUSTRY
DESIGN & CONSTRUCT
ESTATE AGENTS
FREIGHT FORWARDERS
INSURANCE BROKERS
LAND SURVEYORS
PROJECT MANAGERS
QUANTITY SURVEYORS
UNDERWRITING MANAGERS
TELEPHONE: +27 11 459 1640 FACSIMILE: +27 11 268 5887 WWW.LEPPARD.CO.ZA

Professional Indemnity General Liability Insurance Chartered Accountants


Stuart Sinclair Caroline MacNair Sherelle Horsfield
stuart@leppard.co.za caroline@leppard.co.za sherelle@leppard.co.za

Underwritten on behalf of Lombard Insurance Company Limited (FSP no. 1596)

FSP NO IS 274

16 COVER FEBRUARY 2014

February 2014.indd 16 2014/02/04 11:50 PM


Untitled-1 1 2014/02/04 11:54 PM
Short-term

Do consumers understand their


insurance policy documents?
Each month, Santam, South Africas largest short-term insurer, unpacks an interesting insurance topic
with research derived from exclusive Santam client surveys. This month Attie Blaauw, Head of Personal
Lines at Santam, looks at how well consumers read and understand their insurance policy documentation.

THE POWER OF USER-FRIENDLY SUPPORTING THE INTERMEDIARY


CONTENT AND WORDS IN Intermediaries use policy documents
INSURANCE POLICIES to guide their clients in terms of
With a number of regulations in the products most suitable for each
place to protect and inform short- clients individual needs. User-friendly
term insurance policy holders, such documents are important to ensure
as the Consumer Protection Act a good working relationship between
(CPA), Treating Customers Fairly (TCF) policyholders and intermediaries.
and with more regulations like the
Protection of Personal Information According to respondents, 20% of
Bill (POPI) on the way, the manner in policyholders do not pay attention to
which policy documents are compiled their policy documents at all, leaving
for consumers will come under it to their intermediary to explain
scrutiny. all its intricacies to them, further
demonstrating the importance of the
According to a survey conducted by intermediary, whatever the language
Santam, 75% of respondents read and format of the policy document.
their insurance policy documents
on a regular basis, and though they Similarly, respondents (46%) did not
found their documentation to be attempt to use the policy document to
comprehensive and useful, there is lodge a claim, preferring to call their
still a feeling that language can be intermediary and leave them to handle
simplified and fewer industry terms or the entire process.
jargon should be used.
friendly with easy to reference sections Together with the responsibility of
Respondents highlighted that the and summaries outlining limitations, ensuring that their client understands
documentation was too long. 47% cover details, and exclusions written in and agrees with the insurance cover
of respondents suggested that policy everyday language. selected, it is important that the
documents should be more consumer intermediaries take their clients
The clients understanding of their thoroughly through the policy
policy is important for peace of mind documentation to make sure all details
in knowing that they are adequately are understood and taken note of,
covered, and that they understand especially when referring to exclusions
the relevant processes involved when and key processes. Clients are also
having to claim. urged to ensure that the information
provided is correct and that they are
47% OF Policy wording for both the consumer
adequately insured.
and intermediary must be user-
RESPONDENTS friendly and transparent. The aim
SUGGESTED THAT of policy documents is to clarify the
contract between the insurer and the
POLICY DOCUMENTS policyholder, clearly outlining the terms
SHOULD BE MORE and conditions of the policy undertaken
and the cover set in place.
CONSUMER
Many of the survey respondents were
FRIENDLY... positive, acknowledging that the claims
process was clearly outlined in their
policy documents.

18 COVER FEBRUARY 2014

February 2014.indd 18 2014/02/04 11:54 PM


Risk credibility

Capital credibility

Street credibility

Face any challenge with a partner who


knows the way around.

Word on the street is we know risks. In complex times, it is important to partner with a
reliable expert who has all risks in view. As a global reinsurer, we work together with you
to create solutions that fit your needs. Helping you master any challenge.

Find out how at www.munichre.com

NOT IF, BUT HOW

Munich_RE_Campaign_RZ_05.indd
Untitled-1 1 1 08.08.12
2014/02/05 09:16
12:01 AM
Short-term

Investing in people,
investing in fairness
Angela Mhlanga heads up
Standard Banks Financial
Planning business, with 650
financial planners nationally
offering financial planning,
insurance and wealth
management to customers in the
personal markets and business
markets segments of Standard
Bank. Tony Van Niekerk spoke
to Angela about the business and
how she plans to achieve success
in a competitive and challenging
regulatory environment.

HOW DO YOU VIEW THE CURRENT


ADVICE ENVIRONMENT?
The financial planning industry is
not regarded highly enough, partly
due to past wrong doings especially
leading to mis-selling by industry
representatives. As a result the
industry has been faced with enormous
regulatory change to professionalise the
environment and to protect customers.

However, the value of advice can be


downplayed at societys peril; advice is
not always tangible but it has long-
term effects. Most people are not
financially astute and our occupation
as advisors is there to facilitate for our
customers to make sound financial
decisions about their financial affairs.

HOW DO YOU VIEW THE ONGOING


CHANGES IN FINANCIAL PLANNER
REMUNERATION?
I guess the industry looks at examples
in the UK and Australia for the
scenarios that may prevail in this
regard.

We can be proud that the regulator


THE INDUSTRY LOOKS AT EXAMPLES IN THE UK AND AUSTRALIA has already introduced significant
FOR THE SCENARIOS THAT MAY PREVAIL IN THIS REGARD. environmental controls such as the
Financial Advisory and Intermediary

20 COVER FEBRUARY 2014

February 2014.indd 20 2014/02/05 12:02 AM


MAKE SOUND FINANCIAL DECISIONS.
ADVISORS IS THERE TO HELP CUSTOMERS
ASTUTE AND OUR OCCUPATION AS
MOST PEOPLE ARE NOT FINANCIALLY
Services Act (FAIS Act) and regulatory exclusion of certain customers from with regulation, so that the cost of
exams. In the UK and Australia some of accessing financial planning services regulation is lessened. This obviously
the changes had only been introduced purely because the financial planning requires heavy initial investment for
in tandem with the changes in advisor services become expensive. In the UK, businesses, however the costs reduce
remuneration. In a South African for example, the consequences of the in the long run.
context, the FAIS Act, especially the changes to the remuneration were
Code of Conduct which regulates how that the financial planners aggressively HOW DO YOU SEE YOUR BUSINESS
financial planners should act in relation focused on wealthier customers whilst MODEL OVER THE NEXT FIVE
to the customer, has already created certain pockets of customers were YEARS?
significant change in this regard. So, inadequately serviced. Of course non- Our primary objective is to create value
in a sense, there is some comfort to traditional methods of dealing with and memorable experiences for our
be had that South Africa has begun to customers have also been developed customers. This requires that we invest
adapt to some of the changes regarding i.e. face-to-face engagement with the in the people that serve customers and
financial planner remuneration such as customer is not necessarily required. also create standardisation of certain
disclosing fees to customers with the disciplines and processes. We aim to
introduction of FAIS. HOW DO WE DEAL WITH THE increase the number of planners with
COST OF REGULATION, WHICH the CFP qualification in our business as
The positive aspect about the on- IS HAVING HUGE IMPACT OF we believe that will add to the quality
going advisor fee discussion is that it DISTRIBUTION MODELS? of the engagement we have with our
reinforces that advisory services are I believe that the catalyst for customers.
not free of charge and have to be paid less regulation is to have a more
for. This will promote the importance professional financial advisory Our customers have also come to
of what financial advisors do and environment. The customer should expect that we engage with them
reinforce the value of the services be the focus for the industry when utilising different mediums and this will
they provide. we continuously improve treating our be our focus in the next few years-
customers fairly and in a professional improving the customer interfacing
However, the major issue which may manner, regulation measures will be capabilities. This will include investing
arise is lack of business continuity as fewer in the future. Over and above in well-understood advice processes,
a result of potential cash flow squeeze changed behaviour in terms of treating supported by appropriate systems.
when the changes are introduced. customers fairly, I think that more Our business model will be built on
The other issue that may occur is businesses are investing in systems having the customer at the centre of us
that the future changes may lead to that facilitate for ease of complying achieving sustainable growth.

COVER FEBRUARY 2014 21

February 2014.indd 21 2014/02/05 12:02 AM


Mobile

Mobile payments drive


global m-commerce adoption
MEF, the global community for
mobile content and commerce,
released the first report in its MEFS 13-COUNTRY MOBILE MONEY INSIGHT
Global Consumer Insights Series REPORT REVEALS GLOBAL CONSUMER TRENDS AND
on Mobile Money on 22 January BEHAVIOURS IN M-PAYMENTS AND M-BANKING:
2014. The report analyses data 15% of mobile media users used mobile payments to pay for
from 10,000 respondents in 13 goods in 2013.
countries, highlighting regional Mobile money users are 26% more likely to buy via mobile
and global trends in mobile than average.
money uptake and how it is
Africa continues to dominate mobile banking uptake with
stimulating growth across the an average of 82% of consumers engaged in this activity
mobile value chain. (globally its 66%).

In 2013, 15% of mobile media users Network speed is important: two thirds of 4G customers have
made some form of mobile payment made an m-payment.
to make a purchase. The largest
group of these users (7% of the total www.mefmobile.org
sample) did so via a mobile wallet,
especially those based on Near Field
Communications (NFC) technology.
Mobile money users do more of The report suggests that mobile
everything. They are 12% more likely banking is already mainstream in many
to scan barcodes, 11% more likely to regions, but for different reasons.
make charitable donations and 10% In the US, UK and China the use of
GLOBALLY, 91% more likely to use location based mobile apps for checking balances and
services. paying bills is commonplace, whereas
MADE SOME FORM OF in Africa handsets are used to send
airtime to other users, transfer funds
MOBILE PURCHASE IN and seek credit.
2013 AS OPPOSED TO In Africa, the mobile-only culture
means the mobile money account is
65% OF ALL MOBILE the bank account. Globally, 66% of
CONSUMERS. mobile media users use some form of
mobile banking. In Kenya, for example,
its 92%.

The study reveals the importance


The report, carried out in partnership of network speed to the uptake of
with On Device Research, highlights the mobile money. A quarter of users
importance of mobile money users to claim they dont make mobile
the overall m-commerce market, as this payments because the network is too
group is 26% more likely to purchase via slow. That might help explain why
mobile. Globally, 91% made some form fewer than one in seven mobile media
of mobile purchase in 2013 as opposed users have made some form of mobile
to 65% of all mobile consumers. payment.

Mobile money users spend more on Conversely, those connected to super-


individual purchases. They are 10% less speedy 4G networks are much more
likely to make low value payments and engaged: almost two in three (64%)
14% more likely to make mid-value have made a mobile payment.
purchases.

22 COVER FEBRUARY 2014

February 2014.indd 22 2014/02/05 12:02 AM


Mobile money users are significantly more likely to purchase via mobile

91%
65%
56%
49% 42% 40% 36%
25% 20% 23%
17%
9%

Any Purchase NETT Physical & Perishable Digital products (e.g. Physical Goods (e.g. Virtual Goods (e.g. In Perishable goods (e.g.
goods NETT ringtone, app, games, Books, CDs, clothing application currency, food and drink)
music) etc.) goods, prizes etc.)

Total Sample 2013 Use Mobile Money

Any mobile purchase

UK US Kenya China Nigeria Mexico South Saudi Brazil Indonesia UAE Qatar India
Africa

Total Sample 2013 Any mobile money

COVER FEBRUARY 2014 23

February 2014.indd 23 2014/02/06 7:31 PM


Mobile

Infographics
provided by MEF

24 COVER FEBRUARY 2014

February 2014.indd 24 2014/02/06 7:31 PM


Working with
WHEELS

Road safety has become a hot topic. COVER recently attended the Discovery
Insure round table discussion to find solutions to the problem. With rising
costs of fuel and even more heated feelings towards e-tolls in the Gauteng
province, we approached the experts on telematics for their advice and
sneaked a glimpse at the motor vehicle industry in Europe.

Dont miss our feature on Telematics in next months issue of COVER.

Opinions about bad drivers


dont affect premiums
When it comes to prejudice on
the roads, you cant compete
with a road users view of the
worst drivers and their car
brands.

These passionately held views were


confirmed in recent surveys about
drivers and cities with the worst
reputations. The surveys sparked
spirited online comments about the
drivers of brands all the way from Alfa
Romeo to Zotye.

If road users are to be believed,


then surely the alleged and relative
recklessness of drivers of certain brands
must have some impact on insurance
rates, right?

WRONG
For insurance companies, risk Telemetry systems are a great tool SOUL ABRAHAM
assessment is considerably more for trying to change behaviour while General Manager: Car & Home
scientific than perceptions about the reducing insurance costs. They highlight Regent Insurance
dangerous driving habits. poor driving behaviour like speeding,
harsh acceleration and braking, where Report compiled by the International
Insurance companies use statistical and when you drive and how often you Transport Forum revealed that in 2011
models and algorithms that take into are behind the wheel. Conversely, if the there were 27,6 deaths per 100 000
account all the factors in a vehicle tracker records good driving behaviour or inhabitants in South Africa.
users risk universe to determine the any improvements, a drivers risk profile
overall risk profile and premium. will automatically adjust over time. Telematics influences driver behaviour
by encouraging individuals to assess
A drivers age, gender, geography, In May last year, South Africa was their own driving before pointing
nature of travel, vehicle make, model ranked as worst out of 36 countries fingers at drivers of those vehicle
and age, among dozens of other when it came to the number of road brands perceived to wreak havoc on
factors, determine a unique risk profile. fatalities. The Road Safety Annual the roads.

26 COVER FEBRUARY 2014

February 2014.indd 26 2014/02/05 12:03 AM


Dont tweet and drive STATISTICS PROVIDED BY TELESURE

In the other
study by the
Virginia Tech
Transportation
Institute and
National
Highway
Traffic Safety
Administration
in the US, using
mobile devices
trumped all
A new survey has revealed that other potential
distractions
four out of the 10 top driving
including talking
distractions that could cause to passengers,
motorists to have an accident tinkering with
are related to using a mobile dashboard
controls, eating,
device at the wheel. smoking, and
applying make-
Another study lists the use of handheld up, among others. The Road Traffic Management
devices as the number one driver Corporation says that drivers who use
distraction. Whats more, according to a survey hand-held devices are four times more
conducted by the AAA Foundation for likely to get into accidents serious
The first survey conducted Traffic Safety in the US, motorists who enough to injure themselves. To use a
by UK-based website, www. use cellphones while driving are more cellphone while driving is considered
moneysupermarket.com, showed that likely to engage in additional dangerous six times more dangerous than driving
although eating and drinking at the behaviours such as speeding, driving under the influence of alcohol.
wheel remains the biggest distraction drowsy and driving without a seatbelt.
for drivers, SMSing, speaking, updating A Carnegie Mellon University Study
Facebook and sending tweets on a In South Africa, the Automobile found that merely listening to
mobile device while driving are among Association recently counted 2500 cars somebody speak on a phone causes
the top ten most common dangerous during a morning rush hour to find that a 37% drop in activity in the parietal
distractions for motorists. 7,2% of the drivers were on their phones. lobe where spatial tasks are managed.

COVER FEBRUARY 2014 27

February 2014.indd 27 2014/02/05 12:03 AM


Working with
WHEELS

Global Telematics
For new cars, new business from
these products amounted to 2,6% of
the value of cars sold to consumers
in Denmark, France and Italy in
2012, and it was above average in
Portugal, Spain, Sweden and the UK
as well;

For used cars, new business from


these products amounted to 3,7% of
the value of cars sold to consumers
in Sweden in 2012, and it was also
above average in Denmark, France,
Germany, Romania, Switzerland and
the UK;

In contrast, dealers in Ireland and


Ukraine are relatively weak at selling
automotive financial services, and
generated new business worth just
0,6% of the combined value of new
and used car sales through these
products in 2012.

The chart overleaf shows the value


of new business for the six main
contract types named above plus other
niche products that exist in different
countries, measured in terms of gross
premiums written and other revenue
as a percentage of the combined value
MOTOR FINANCE NEWS FROM GAP (guaranteed asset protection) of new and used cars sold by dealers
EUROPE insurance and road assistance, while to retail customers in 2012. This is
Statistics provided by Finaccord, the niche products range from for ten of the 25 countries studied
a market research consultancy passenger accident insurance in Austria by Finaccord, namely the six largest
specialising in financial services. to tyre insurance in the UK. markets in Europe for these products
overall plus two other countries where
Car dealers and manufacturers in these products are most important
Europe have had a tough time in and the two countries where they are
recent years, with new car registrations least important, in percentage terms.
falling in a majority of countries, with FINACCORD ESTIMATES
a few exceptions like Russia, Turkey Motor insurance is the most important
THAT DEALERS SOLD of these financial services, amounting
and the UK. Dealerships and car
manufacturers have become more POLICIES WORTH to 46% of these revenues coming
reliant than ever on generating revenue from the automotive trade. Germany
EUR 16,3 BILLION IN and Russia were the most important
from financial and other services that
REVENUE IN 2012. markets for motor insurance sold
can be cross-sold with cars.
through this channel, with gross
Finaccord estimates that dealers sold written premiums of EUR 324 million
policies worth EUR 16,3 billion in and EUR 481 million respectively, for
revenue in 2012 (measured as gross Just over half of this figure was new new business in 2012. However, this
written premiums and similar revenues) business generated from car sales means that across Europe as a whole
across six major insurance, warranty made in 2012 (EUR 8,6 billion), while over half of this market is made up
and assistance types plus niche the rest came from policies connected from other products and in France and
insurance products that are present in to cars sold in previous years that were the UK motor insurance accounts for
some of these countries. still in force in 2012 (EUR 7,7 billion). no more.

The six main types are motor In some countries, revenue from the Visit finaccord.com for more motor
insurance, extended warranties, prepaid sale of these financial services is nearly finance information in Europe.
service contracts, creditor insurance, twice that of the European average.

28 COVER FEBRUARY 2014

February 2014.indd 28 2014/02/05 12:03 AM


Fraud is on the RISE
SHAUN WASO
Managing Director
Affinity Group

The short-term insurance sector


is vulnerable to unscrupulous
policy holders and service
providers, especially in the
towing industry. Although
the majority of tow truck
operators manage legitimate
businesses with fair business
practices, there are some who
do not hesitate to overcharge
insurance companies. In some
cases insurance companies are
inaccessible for days, sometimes weeks space as bigger towing companies
actively defrauded as a result of because of stalling tactics by storage and associations hold contracts with
a lack of control when dealing yards? insurance companies. The bigger
with questionable towing towing companies in turn use these
The industry spends upwards of contracts to control the industry by
companies. R900m per year on towing. How much subcontracting to smaller towing
of this are over charges and exorbitant companies at reduced rates which
The insurance industry has long since release fees? Not to mention the stifles competition and a free market
grappled with the management of incalculable cost of employee down environment.
accident vehicle towing. How do I time when dealing with these
control where the vehicle goes after it frustrating issues. A transparent and fair relationship
has been towed by a tow truck? When between the towing and insurance
will I be notified where the vehicle is TOW TRUCK OWNERS HAVE industries will be welcomed by the
being stored? How do I verify that the PROBLEMS TOO majority of both parties.
invoice I receive for towing services Long delays in receiving payment,
is equitable? How much additional lack of communication with insurance This article was shortened and
damage is the vehicle suffering in companies lead to misunderstanding republished with permission from the
storage? How do I cut down on claims and distrust. Smaller operators author. For the full article visit the
turnaround times if the vehicle is are battling to get into the market Affinity Groups July newsletter.

COVER FEBRUARY 2014 29

February 2014.indd 29 2014/02/05 12:04 AM


Working with
WHEELS

Cartrack has launched a new are available one calculates fares LORENZ STOGER
at e-tag holder rates and a second Fleet Services Manager
e-toll report that allows fleet Cartrack
option calculates rates for users who
managers to calculate their e-toll do not have e-tags fitted. The i-net
transactions and manage their reports setup generates reports at
predetermined intervals, for example e-toll event each time the vehicle
operating costs. This report is passes through a gantry. The date,
daily, weekly or monthly.
the solution to fleet managers time, gantry name, vehicle type/class,
who have been burdened with By geo-fencing the exact position of direction of travel and toll cost are then
each e-toll gantry in Gauteng, the fleet recorded in a database. The report also
the additional challenge of
management unit detects and logs an helps detect licence plate cloning.
having to manage and monitor
the complex e-toll tariff system
across multiple vehicles.

Managing these costs and ensuring


that e-toll transactions are correct
and allocated to the appropriate
vehicles is import, especially in a fleet
situation where multiple vehicles are in
operation at any one time.

Fleet management units (tracking


units with GPS positioning) generate
reports on demand to monitor e-toll
costs for any specific vehicle during
the course of the month and to extract
reports historically. Two report options

30 COVER FEBRUARY 2014

February 2014.indd 30 2014/02/05 12:04 AM


Whats in a name?
When time is a factor and today, so
limited, it is imperative to be able to
arrive at the right location within the
correct time frame. Failure to which
may result in lost opportunities and
inconvenienced, irritable, customers.

TomTom acknowledged how this was


affecting both South Africans and their
businesses, so they developed a way
to embed both the new and old road
name into their map data which they
offer on their new GO Series devices.
Now users can search for either
the new or old name of a road and
find their destination faster. To date
TomTom have included approximately
400 alternative names in their map
data. The device also has lifetime
TomTom traffic which route the driver
around congestion as well as a sudden
jam ahead warning feature that alerts
the driver to notable congestion
ahead enabling the driver to reduce
their speed to avoid a collision. It also
has one line quick search which also
saves time and irritation by making
the seeking function seamless and
quick. The device offers lifetime map
upgrades for the life of the device so
the user will not have to pay for new
maps again.

With the many differentiating features


of the new GO Series devices, business
According to TomTom data,
owners will be able to equip their
68% of the road name changes team members on the ground with
in South Africa happened SINCE 1994, OVER 400 quality information and a tool to help
in Durban, with 17% in ROAD NAMES HAVE CHANGED them complete their tasks efficiently,
ACROSS SOUTH AFRICA resulting in an efficient business, says
Johannesburg, 11% in Pretoria Daan Henderickx, General Manager of
and 4% in Cape Town. TomTom Southern Africa.

COVER FEBRUARY 2014 31

February 2014.indd 31 2014/02/05 12:04 AM


Fire

Fire is an expensive risk


for SA businesses
GARI DOMBO
MD for Alexander Forbes Insurance (AFI)

According to the Council for


Scientific and Industrial Research
(CSIR), sub-Saharan Africa has the
highest frequency of fires in the
world.

Last year December, a fire in the Western


Cape razed 350 homes to the ground
leaving 1400 people homeless. In the
Eastern Cape, a fire in St Francis Bay
destroyed 76 properties with claims for
property damages of over R30 million.

In the last year alone, three JSE listed


companies suffered substantial losses due
to fires.

Businesses need to understand the risks and ensure


that they have a comprehensive policy that will cover SIMPLE STEPS TO REDUCE OR
their assets against loss or damage, which could include ELIMINATE THE RISK OF FIRE
stock, machinery, electronic equipment, money, glass
and documents. They also need to consider if cover is Check the electrical wiring of your business.
needed for property in transit or at premises elsewhere
Make sure that you do not overload power points
than at the specified premises.
and that you switch off appliances from the plug
point when they are not in use.
For many businesses, the devastating effects of a blaze
may only be realised days or weeks after a fire has Conduct annual re inspections at business
been extinguished. premises using re risk management experts.

Apart from having to replace damaged assets, business Ensure maintenance of machinery and equipment
owners will experience loss of business income and
customers. Business Interruption cover protects Ensure that appropriate re ghting equipment
(sprinklers, hose reels, re detectors and
business owners against loss of profits or revenue.
extinguishers) has been installed and serviced at
the correct frequency.
It is equally important to disclose whether a business,
property or structure has a thatched roof. An insurer Have a clear policy for waste disposal and remove
will usually carry out an inspection of a thatched waste from the working environment and premises
property before it agrees to cover the property. Most frequently.
insurers will check what fire prevention and safety
measures are in place to protect the property. Once Make sure that employees only smoke in designated
a fire takes hold of a thatched property, it usually places and that these places have suitable
containers for disposal of discarded cigarettes.
spreads quickly and often causes extensive damage.
Take extra care with any stored chemicals and fuels,
The cause of fires can be attributed to electrical especially those stored in the garage.
faults, improper maintenance or not complying with
regulations. 90% of fires are caused by human Keep emergency services numbers such as Fire
negligence, according to Working on Fire (WoF), Brigade in easily accessible places.
a programme that focuses on Integrated Fire
Management in South Africa. Businesses must keep Conduct regular re drills and re training.
their records up to date and keep copies of important
documents (paper or electronic) off-site.

32 COVER FEBRUARY 2014

February 2014.indd 32 2014/02/05 12:06 AM


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55572 Absa 1Wealth_Man in office Ads_297x210_Eng.indd 1


Untitled-1 2013/11/20 7:47
2014/02/05 3:02AM
PM
Fire

Fire insurance
driving awareness of
risk management
Fire claims contribute to the cover, for example: loss of clients
and the distraction of management
losses suffered by insurers,
and executive. Many corporate fires
commerce and industry every could have been prevented through
year. Fire claims tend to be high appropriate risk management. It is in
value, high visibility claims. In an enterprises best interest to invest in
risk management from an ideological
2012 the industry experienced a and operational perspective.
significant level of fire loss during
As an insurer, we are concerned with
the St Francis Bay fires, and a
the quality of risk, pricing of risk and
significant number of commercial risk management, and we feel that
and corporate fire claims were local expertise is essential to provide
made in 2012 and 2013. While adequate service to brokers and clients.
Mutual & Federal takes a holistic risk
the number of fire claims hasnt management approach across the
increased, our experience is underwriting, risk management and
that the severity has increased, claims disciplines, employing local
decision makers and experts who
notwithstanding claims inflation. are accessible to brokers and clients
through the respective processes. In report on the extent and quality of
Currently, there is a sense that
order to assess risk in commercial the risk. Clients value these reports,
business enterprises are under pressure
and corporate enterprises, we employ as they provide an independent
due to the challenging economic
expert fire surveyors who produce a source of verification and guidance
times and that they are focused on
on the risks inherent in their business
survival, and therefore not as focused
premises, and provide risk management
on risk management. While insurance
recommendations and requirements.
programmes transfer some of the fire
There are consequences to the
risk to the insurer, enterprises still KAREN MILLER
Mutual & Federal
quality of risk and these play out in
suffer losses beyond the replacement
Executive: Corporate & Niche pricing, required risk improvements
of assets and the business interruption
or restrictions that are included in the
contract.

We have recently introduced some


innovation in our drive to assist
clients to reduce the risk of fire by
introducing thermal infrared scanners
to identify hotspots and fire risks
on equipment such as transformers.
We are also investing in skills by
employing chemical engineers who are
better able to analyse fire risks and
provide appropriate risk improvement
recommendations.

As an insurer creating awareness of risk


management and assisting companies
to engage in good risk management
practices is essential. Mutual & Federal
is well placed to provide sound risk
management advice and strive to form
partnerships with brokers, and add
value that turns our clients setbacks
into comebacks.

34 COVER FEBRUARY 2014

February 2014.indd 34 2014/02/05 12:11 AM


JHB 44515

Weve got great


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

To all our underwriting managers, brokers and distribution partners -


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

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

Untitled-1 1 2014/02/05 7:48 AM


Short-term

Best approach to pricing


for Goods in Transit?
A frequent item in radio traffic loss ratio of an individual account can PAUL BUCKLEY
be catastrophic. However, separating Managing Director
reports is of delays at certain XL Transit
the risks diversifies the losses and
roads because a truck has lost its therefore protects both the brokers and
load and this highlights just one the clients performance.
of the many risks commercial To price accurately a goods-in-transit
road transport insurance faces. risk, it is imperative to measure risk On average, 28 motor
Other risks include hijacking or exposure correctly. Unpacking the
three different approaches to rating vehicles were hijacked
theft of loads, weather-related
(estimated haulage fees, estimated every day in 2012/13.
and collision losses. annual carry and load limit per truck) Vehicle hijacking increased
on GIT cover will help determine the
Damage can occur to load, truck and most accurate measurement of risk by 5,4% to 9 990 incidents.
trailer. A first step in GIT insurance is exposure. Source: africacheck.org
to separate the risk of damage to each
of these, as it represents a significant The estimated haulage-fee approach
accumulation of risk if one carrier is undoubtedly the weakest. Very
has insured all three and such loss or few businesses will over-estimate
damage occurs. Then, the resultant their haulage-fee income when this

36 COVER FEBRUARY 2014

February 2014.indd 36 2014/02/05 12:11 AM


TO PRICE ACCURATELY A Recent experience highlighted glaring on the applicable historic loss ratio.
inaccuracies in matching premium price These five factors, namely the number
GOODS-IN-TRANSIT RISK, IT to risk exposure. In one example, the of trucks, load limit per truck, nature
load limit was stipulated as R1 000 of the load, distribution area and
IS IMPERATIVE TO MEASURE 000 and the estimated annual carry historical loss ratio, provide the most
RISK EXPOSURE CORRECTLY. was R16 000 000, therefore assuming accurate means of measuring risk
an average of 1,5 loads per month exposure. It also takes determining
for carriage. The fleet list, however, the risk away from the operator
showed 60 trucks specified. The loss and places it with the underwriter,
ratio was in multiples of hundreds. involving minimal estimate.
When the broker has to rebroke
forms the basis of their premium. This A particularly large fleet may
this account, the clients loss ratio is
approach does not consider the limit
enormous, not merely because of the require blanket cover and it would
or nature of the load, the fleet size or
frequency and severity of the claims, be impractical having to specify
geographic distribution area. In short,
but also because of the mispricing each truck and its limit. Here a
it is an inaccurate measurement of the
of the risk owing to the inaccurate combination of load limit per truck
true risk exposure.
approach. and estimated annual carry could
Estimated annual carry certainly serve as a measurement. The fleet
measures and reflects the risk exposure The basis of load limit per truck is the list could then be checked every
more accurately than the haulage- best measurement of risk exposure. six or twelve months to determine
fee basis. It considers the limit of the It assumes that the operator will the fleet growth or reduction and,
loads and the number of carries over a be running consistently and daily depending on claims, the premium
period and these give some indication according to the business needs. It stepped up accordingly.
of the distances the respective loads requires a specified load limit and the
will travel. But it is still an estimate, specified trucks where that limit will In general insurance, the goal should
which is an inaccurate measurement apply. It is then adjusted according be to eliminate estimates as much as
and places the onus for the rate basis to the nature of the load, the possible and strive for accuracy. This
and premium determination on the geographic distribution area and can applies to a greater extent to the high-
very entity that will be paying it. be discounted or loaded, depending frequency claim market of GIT.

COVER FEBRUARY 2014 37

February 2014.indd 37 2014/02/05 12:11 AM


Short-term

There is no long-term benefit to to assist with the proper compilation We cannot only rely on gut feel to
of a quotation. The rates reflected in underwrite the risk. First prize would
gut feel underwriting.
these manuals were accumulated and be to visit the site, ask questions, and
compiled over a period of many years gather first-hand information on the
and were based on statistical data. experience of the project manager and
his construction team. This will enable
WE HAVE NOTICED DRAMATIC One could argue that technology the underwriter to present terms and
CHANGES IN THE SOUTH AFRICAN has reduced the perceived risk, and conditions appropriate to the risk.
therefore attracted lower terms, but
ENGINEERING INSURANCE MARKET. repair costs have also escalated. But why do underwriters accept
risk when they dont have all the
The number of skilled underwriters underwriting information? Is the
has reduced due to natural attrition. reason a lack of expertise, managerial
The engineering short-term industry The training role played by insurance pressures to achieve premium income
has grown by capacity and in the companies and brokers is being targets, time pressures, or all of the
number of underwriting managers hampered by new anti-collusion above?
and agencies, but has expertise regulations and financial constraints.
grown in the same proportion? Are I would assume that no underwriter
we underwriting using technical skills Make no mistake, gut feel is an would like to explain to his directors
or gut feel or do we just follow the important part of underwriting, but that he accepted the risk on gut feel.
leading underwriter? it is crucial that gut feel is supported At the end of the day the underwriter
by experience and backed by the is accountable and needs to take
We have noticed dramatic changes application of solid underwriting responsibility for his actions.
in the South African engineering principles.
insurance market. It seems that good The insurance industry is no different
engineering risk underwriting is being Brokers spend a lot of time preparing to any other industry. Experience
replaced by gut feel underwriting. broking notes with referrals to comes with time which includes highs
additional reading, but do people read and lows. If gut feel underwriting
In the past new underwriters were and understand broking notes? We continues without the necessary
trained by highly skilled engineering are seeing a large number of projects experience or knowledge of the risk
underwriters from our professional taking place in Africa. Broking notes we will see the demise of a number of
reinsurers, larger insurance companies may sometimes be limited due to time underwriting managers.
and brokers. They had rating manuals constraints.

38 COVER FEBRUARY 2014

February 2014.indd 38 2014/02/06 7:33 PM


Choice Elements - CMYK

Love is in the air


So is Momentums mobile application for Smartphone users.
Do quick quotes for your clients while on the move.
They will love you for it.

For more information, visit www.momentum.co.za or call us on 0860 11 15 12 and see


what else the app has to offer.

Let us help you to enhance your clients financial wellness and safety in 2014.

Momentum Short-term Insurance is an authorised financial services provider.


A division of MMI Group Limited. short-term insurance

MomentumSTI_Cover_Feb
Untitled-1 1 2014.indd 1 2014/01/17 7:49
2014/02/05 8:35AM
AM
Short-term

Construction guarantees
Its common practice in the for the insurer undertaking to make enable the beneficiary to obtain
payment upon receipt of a first written payment for loss suffered through
construction industry for clients
demand from the beneficiary calling up the conduct of the contactor by the
awarding construction contracts the guarantee. production of the documentation
to building contractors to insist specified in the guarantee. The
that the contractor furnish a Insurers have attempted to avoid guarantee was enforceable according
liability under the guarantee on the to its terms, and the introduction of
guarantee from an acceptable grounds that the client was not entitled extraneous issues as a defence was
party, and a guaranteed sum to cancel the agreement, that the precluded, save for limited exceptions
is payable to the client upon contractor fulfilled his obligations like fraud. This approach has its
or that the problems experienced origin in the English Law relating to
cancellation of the contract on letters of credit issued by banks which
by the client were caused by faulty
the basis of default on the part design rather than the conduct of the required the issuing bank to pay if
of the contractor. contractor. the documents provided to it were in
order and the terms of the LOC were
Such guarantees, which are regularly Beneficiaries to a construction satisfied, any dispute between the
issued by insurance companies short- guarantee have argued that the parties to the underlying contract to be
term insurance business, provide purpose of such a guarantee is to determined by those parties alone. The

40 COVER FEBRUARY 2014

February 2014.indd 40 2014/02/05 12:12 AM


Landmark Holdings (Pty) Ltd 2010 lost the right to enforce the guarantee
(2) SA 86 (SCA) the court viewing against the insurer which had issued
such guarantees as being not unlike it and there remained no legitimate
letters of credit issued by banks. purpose to which the guaranteed sum
The obligation of the issuer is wholly could be applied.
independent of the underlying contract
and whatever disputes may arise This approach seemed to equate
between the parties to the underlying the liability of the insurer under the
agreement is of no importance to the guarantee as that of a co-principal
issuer who is liable if the conditions debtor whose liability depended upon
specified by the guarantee are met. the liability of the main debtor, the
The only basis upon which liability can contractor in terms of the construction
be avoided is proof of fraud on the part contract, rather than one arising
of the beneficiary. from an independent agreement. The
guarantee issued by the insurer was
However, following upon the decision viewed as accessory to the underlying
of the Supreme Court of Appeal in the contract. This view contrasted sharply
case of Dormell Properties vs Renasa with the view of the minority judges,
Insurance Co Ltd NNO 2011 (1) SA 70 as set out by Cloete JA, who stated
(SCA) decided only a year after the that whatever disputes there were
Lombard case, the traditional view of or might have been between the
the guarantors liability was called into client and the contractor, these were
question. irrelevant to the insurers obligation to
BRIAN MARTIN
Legal Manager at Renasa Insurance perform in terms of the construction
In the Dormell case, Bertlesmann AJA, guarantee and there was no need for
Company Limited, asks, is the liability on
an insurer absolute and unconditional? who delivered the majority judgement, the beneficiary to allege that it had
stated that: validly cancelled the building contract
due to the contractors default.
English courts regarded performance
bonds, the equivalent of a contraction The minority judges specifically
guarantee, to be virtually promissory approved of the Loomcraft Fabrics
notes payable upon demand (see and Lombard decisions as well as the
THE ARBITRATION HAD judgement of Lord Denning MR in the
Edward Owen Engineering Ltd vs
Barclays Bank International Ltd 1978 1 TAKEN PLACE IN TERMS OF Edward Owen Engineering case.
All ER 976 (CA)). THE CONTRACT CONCLUDED It would not be long before the
The party who issues such a guarantee BETWEEN THE CLIENT AND THE confusion created by the Dormell would
must honour the guarantee according come back before the SCA. In 2013
CONTRACTOR WHICH FOUND THAT
to its terms and must not become the SCA had to again decide whether
THE CLIENTS REPUDIATION OF THE to follow the reasoning of the majority
concerned in the relationship between
the parties to the underlying contract CONTRACT HAD BEEN UNLAWFUL. or minority judges in the Dormell case,
and whether the contractor is in default this time in the matter of Coface South
or not. It must pay on demand without Africa Insurance Co Ltd vs East London
proof of conditions. Own Haven ( Case No 050/2013
). The Court after conducting a
This approach was followed by courts thorough analysis of all the previous
in South Africa (see Loomcraft Fabrics In principle therefore, the guarantee decisions referred to as well as its own
CC vs Nedbank Ltd & another 1996 (1) must be honoured as soon as the decisions on the liability of banks in
SA 812 (A)) on the basis that banks employer makes a proper claim against terms of Letters of Credit given after
should honour their obligations under it upon the happening of a specified the Dormell decision, concluded that
irrevocable letters of credit without event. In the present case there is Dormell had been wrongly decided
judicial interference, so long as fraud no suggestion that Dormell did not and that the liability of a guarantor in
was not involved, on the grounds that properly demand payment of the terms of a performance guarantee was
such documents were the lifeblood of guaranteed sum. absolute and unconditional. The Court
commerce . acknowledged without qualification
However, despite this finding, the that the decision of the majority in
Rights obtained by such contracts Judge then curiously proceeded to Dormell was clearly wrong.
should be treated as the equivalent of have regard to an arbitration award
cash in hand. made in favour of the contractor. The The wheel has now come full circle
arbitration had taken place in terms of and it can now be regarded as settled
The approach adopted by the Appeal the contract concluded between the law that the liability of an insurer who
Court in the Loomcraft case was client and the contractor which found issues a Construction Guarantee is
affirmed by the Supreme Court of that the clients repudiation of the absolute and unconditional subject only
Appeal in 2010 as being applicable to contract had been unlawful. The Court to the terms of the guarantee being
performance guarantees, in the case reasoned that as a consequence of the fulfilled and there being no fraud on
Lombard Insurance Company Ltd vs arbitration finding the beneficiary had the part of the beneficiary.

COVER FEBRUARY 2014 41

February 2014.indd 41 2014/02/05 12:12 AM


Liability Insurance

Are you prepared


for the total Recall?
As globalisation is reaching into it becomes quickly clear that the
European Union and China are by
countries which have not been
far the main export partners, with
exposed to it in the past, the the European Union representing a
exposure resulting from this volume of US$ 22,3 million and China
expanded trade has increased representing US$ 13,4 million in South
African exports2.
severely, states Wolfram-F.
Schultz, Regional Head of With increasing exports and
globalisation comes a greater risk of
Liability of Allianz Global
claims resulting from the exporting of
Corporate & Specialty Africa. goods. One threat of this globalisation
African companies should can manifest itself in costs suffered
observe the exposure and due to a recall of products to prevent
bodily injury and/or property damage.
prepare themselves accordingly. These recalls may be triggered by a To be prepared to face such exposure
faulty product, malicious tampering South African companies need to put
Since the ushering of the new robust systems in place to reduce
or even product extortion and can
democracy, South African trade has the loss potential. These systems
cause high costs for the recall itself
increased substantially. This is due should, for example, look at the
and financial losses and reputational
to the lifting of several sanctions and monitoring of customer complaints,
damages for the company. This higher
boycotts which were imposed on South cooperation with suppliers related to
propensity of being confronted with
Africa in the past. The last figures changes in product and/or packaging,
claims from business partners and end
published for August 2013 by the SARS contractual arrangements to pass
consumers from various jurisdictions is
do show that exports have reached a risk back to suppliers in case of a
valid for all industry sectors.
volume of ZAR 70,70 billion from ZAR problem caused by the supplied
61,4 billion in August 20121. product, communication of a recall, the
execution of the crisis plan in case a
South Africas role as export nation is
mainly based on its minerals. South
SOUTH AFRICA IS THE recall needs to be triggered - including
the After Care to secure that the
Africa is the worlds largest producer WORLDS LARGEST impact of the recall will not lead to a
of chrome, manganese, platinum loss in market share or, even worse, to
and vanadium. Furthermore, South PRODUCER OF CHROME,
the insolvency of the company.
Africa is the second largest producer MANGANESE, PLATINUM
of gold. It is also the worlds third Further to the pro-active risk
largest coal exporter, even if the AND VANADIUM. management, a cover for recall
role of coal exports within the GDP triggered by a faulty product, malicious
declined sharply compared to the tampering or even product extortion
1980s. As result, in 2011, fuels and should be in place. The scope of cover
mining products in the value of US$ The number of recall notifications by
should be led by the risk appetite
41,1 million were exported. The large country of origin of the notified product
and exposure the products are faced
agricultural sector and the plenty of recorded for 2011 varied from 1 (for
with, and the limits purchased have to
goods manufactured in South Africa example, Austria, Egypt, Israel and
mirror the different exposures around
also add significantly to the exports Norway) up to 990 (China)3. Not all
the world. Such an insurance solution
(Agricultural goods US$ 9,2 million/ industry sectors are similarly exposed
completes the risk management
Manufactured goods US$ 38,1 million). to recalls, but looking at South Africas
measures so that the business can
These three areas at the same time main commodity groups exported, reduce the propensity of a recall and
represent the main commodity groups the exposure for a recall connected limit the impact of a recall if it does
according to data from World Trade to exports to South Africas main happen.
Organisation2. export destinations can be seen as
increasing from year to year. It can be
South Africas principal international noticed that tighter and more complex 1: SARS: South African Trade Statistics for
trading partners are the European product safety legislation has driven August 2013
Union (mainly Germany, the United up the number of recalls. As these 2: WTO: Trade Profiles
Kingdom and Spain), China, the United are external effects, many businesses
States, Japan and India. Looking at the underestimate the exposure such 3: Strategic Risk: A Report on Product
figures connected to those countries, changes comprise for their brand. Recall/2011

42 COVER FEBRUARY 2014

February 2014.indd 42 2014/02/05 12:12 AM


EMPLOYEE MOTOR FLEET
AND RISK RISK FINANCE INSURANCE CAR HIRE
BENEFITS SOLUTIONS Paladin INSURANCE
Blue Diamond
Centriq BrokerserV
Manwood

NON-STANDARD OWNER DRIVER


LIFE INSURANCE INSURANCE
AllLife
HCV Hambe Kahle
INSURANCE
IUM

MARINE AVIATION
INSURANCE
INSURANCE Azriel Aero
Nautical Aviation

EVENTS AND
ENTERTAINMENT
KEU Xelus, Total Risk
Administrators

EXCESS BUYDOWN
INSURANCE MOTOR
STAND ALONE IUM, Paladin,
Beyonda Group SAU Paradigm,
Ad Ultimum

WHY LOOK ANYWHERE ELSE?


Were all different. We think, work and live differently. At Centriq, we see insurance in the same way differently. Its this way of looking
at you and your clients that makes us a partner you can trust and turn to, whatever your clients insurance needs, from assets to
liabilities to people. Over the years, weve built relationships with leading UMA business partners in our industry that position us to offer
each insurance broker and their clients unique solutions provided by dedicated and competent people thats the Centriq difference.

Untitled-1 1 2014/02/05 7:50 AM


Healthcare

AIDS claimants
return to work
Latest statistics from South
African insurers reveal that the
fight against HIV/Aids is gaining
traction, with people affected
by the disease returning to work
after shorter periods of time and
claims earlier than in the past. Old
Aids related deaths declining
Mutual has seen a reduction in deaths,
significantly. which is likely to be linked to Aids.

In 2001 only 1% of Old Mutuals group Since 2008, a high level analysis we
disability claims were due to Aids. Ten conducted among major companies
years later Aids claims accounted for shows a 20% reduction in the mortality
more than 10% of total disabilities. rate. Simply put fewer people are
However, Parkin says that while the dying.
number of claims linked to Aids has
increased, the disease remains a However, since Aids is not generally
relatively short-term cause of disability. recorded as a cause of death, it is
Compared to the average disability difficult to assess whether a reduction
NEIL PARKIN in Aids deaths is driving this.
income claimant who is paid for 6 Group Assurance Actuary
years, and longer term conditions (such at Old Mutual Corporate
as psychiatric diseases) which are paid Comment has been made that Aids
for over 10 years, the duration of an is changing from a certain death
average Aids claim is just 1 years. sentence to a chronic and manageable
disease. The experience of our group
South Africans are claiming for Aids- Although stigma continues to surround risk schemes bears witness to this
related disabilities for short terms. This Aids, this is reducing, especially in the we have seen a period of increasing
is not due to the incorrect belief that insurance and employment context. deaths, and then the recent start of a
there is high death rate amongst Aids In the Group Assurance market, Aids reversal.
claimants, but rather because better is treated like any other condition
treatment is allowing people to return with no specific exclusions. A greater There is much speculation about the
to work much sooner than in the past. comfort with this principle may have future of Aids, but the hope is that the
led to increased reporting. We are thus savings from fewer Aids deaths will
In 2012 the majority of claims that classifying more claims correctly, and filter through into enhanced disability
ended saw the claimant recover employees are likely to be submitting benefits for all members.
sufficiently to return to work. This
is a major change in both the way
Aids claims are managed from an
insurance perspective, and the
expectation around peoples ability to
be reintegrated into the workplace.

SOUTH AFRICANS ARE


CLAIMING FOR AIDS-RELATED
DISABILITIES FOR SHORT TERMS.

This has been driven by a number of


factors, including both the progression
of HIV in the working population and
the way claims are reported.

44 COVER FEBRUARY 2014

February 2014.indd 44 2014/02/05 12:12 AM


Untitled-1 1 2014/02/06 7:19 PM
Bicycle

Together with
Chartered Insurance
Brokers, Infiniti
sponsors the annual
Van Gaalens Dirt
Festival in November
of each year.

Iw
a
wan nt to
t to ride
ride my
Back
in the

it w bicy
day bicycles
were used as a method

her cle,
of transport. They were robust
and cheap, fulfilled the purpose for

eI I
which they were intended, almost impossible

like
to damage unless you got under a car in which case
everyone was more concerned about repairing you than
the bicycle, and only stolen if you neglected to use
your bicycle chain lock.

Then the age of exercise arrived and cycling became a sport.


Because we are a competitive breed, we started racing each other
and doing endurance tests and the bicycle had to adapt to be
fast and light, or able to traverse rough terrain. This resulted in
a whole generation of bicycles that cost more than a car cost a
decade ago, and so the need for specialist bicycle insurance arose.

Your bicycle is now an investment that will dent your bank


balance to replace. It is also an integral part of your lifestyle and
additionally is in constant use. It is transported either on the back
of your vehicle or by air to and from events and therefore can
BICYCLE FACTS
easily be damaged or destroyed, leaving you desolate and likely to There are over a half billion bicycles
put on weight. in China. Bikes were first brought to
China in the late 1800s.
Infiniti insurance are cognisant of the fact that serious cyclists
need a serious and dedicated policy, and together with two of About 100 million bicycles are
their broker partners, have launched policies that cater to this manufactured worldwide each year.
market.
Americans use their bicycles for less
Rowan Jones of Compendium Insurance Brokers says of his Pedal than one percent of all urban trips.
Power Policy underwritten by Infiniti Insurance, Over and above Europeans bike in cities a lot more
insuring your bicycle including during transit and while you are oftenin Italy 5% of all trips are on
racing or taking part in a mountain bike event, we automatically bicycle, 30% in the Netherlands,
give you cover for accessories like your odometer and travel box. and seven out of eight Dutch
We provide evacuation cover if you are injured during a race, or people over age 15 have a bike.
even while training, and many more tasty little add-ons that
ensure your peace of mind. The fastest speed ever recorded on
a bicycle was attained by American
Chartered Insurance Brokers have adapted their Personal Lines Olympic Cyclist and Ironman
Policy to be cyclist friendly. Says Ollie Burnett, the CEO of triathlon competitor John Howard,
Chartered, I am myself an avid cyclist and so know the needs of when he reached 250km/h in 1985.
cyclists. Accidents do happen and it is important that you have
the correct liability and personal accident cover so that you dont Cycling three hours or 30 kilometers
find yourself seriously out of pocket. Often damage to your bicycle per week halves your risk of heart
is the least costly part of an accident. disease and stroke

46 COVER FEBRUARY 2014

February 2014.indd 46 2014/02/06 7:34 PM


Cycling equipment
value on the rise
need to know immediately what it is,
what it does, and what the value of
damage or loss is.

As a binderholder of Hollard, Cyclesure


is able to offer innovative risk solution
for cycling enthusiasts. Policies cover
all risks for bicycles and accessories
based on replacement value and have
no limit on the amount insured, with
95 percent of claims being settled
within 24 hours of receipt of relevant
documentation. Cover includes:

Theft, hijacking or damage incurred


during international, national,
provincial or club events, as well as
time trails or track events;

Personal accident cover of up to R20


000;

A R2 000 medical benefit (for official


racing events only);

R2 000 cover for trauma counselling,


as result of a violent act of theft,
hold-up, hijacking or armed robbery
(which also applies if you are out
training on your bicycle);

Up to R1 million in legal liability


cover, which may be increased to R3
or R5 million.

With a growing number of cyclists


in South Africa, both recreational
and professional, it was found that
the uptake of bicycle insurance has
With the value of on- and increased by more than 15% over
off-road cycling equipment the past year, with R189 000 being
the highest value of a bicycle on our
increasing at an exponential rate, books.
and given the risks associated
with cycling in South Africa, it is Bicycle insurance is maxamised at R70
000 when added to typical personal
important to make sure that you lines insurance policies. This has
are getting the right insurance resulted in brokers and short-term
package with sufficient cover. insurers seeking specialised insurance,
as clients have become more trusting
Fred Hennings, cycling enthusiast with expensive cycling equipment.
and managing director of
Cyclesure Insurance Consultants, Underwriting and claims staff in bicycle
mechanics have to be special trained
speaks of the importance so that they understand their clients
of insuring your bicycles, needs. When a client claims for a
accessories, and yourself. certain component, staff members

COVER FEBRUARY 2014 47

February 2014.indd 47 2014/02/05 7:51 AM


Coffee with
COVER
Discovering ways to drive change
Discovery Insure
numbers its members What still separates broker and
I am personally convinced
that one person can be a change
at over 50 000, and direct business? Do you think the catalyst, a transformer in any
appears to be set to two models are moving closer to situation, any organisation. Such
grow that number in each other? an individual is yeast that can
leaven an entire loaf. It requires
2014. COVER caught Im of the rm view that preferences dictate
vision, initiative, patience,
up with Anton Ossip,
choices. So, the consumer used to select
how to communicate with the insurer. Now, respect, persistence, courage, and
CEO of Discovery of course, the differences are becoming faith to be a transforming leader.
Stephen R. Covey (born 1932);
Insure, to chat to him
blurred you often come across a broker
selling business through a call centre and motivational writer
about the success of direct insurers selling face-to-face is
Discoverys various
that intermediated or not? Whatever the
channel, the important point is that it is
initiatives, particularly clear to the client what he is getting if he
with regards to
is expecting a range of quotes, he must
get a range. If he is comfortable with a
How are brokers accepting the role
creating responsible particular product, then so be it. There is
of telematics?
drivers. We also asked
room for both models.
Initially, the offering meant that brokers had
this young leader in Your telematics model has been to tell clients about a whole lot of new
running for some time now. How
the industry how he information, and they werent used to this.
has the take-up been and how do Brokers who have embraced it have entered
takes responsibility for you see this taking shape in 2014? a different world: they talk about a monthly
his own well-being. Two-and-a-half years ago, Discovery
scorecard, and what that means; so, they have
become risk coaches to clients rather than
was the rst to go out strongly with this transactional advisors. It is difcult to compete
technology, while others had been adding with the internet if all you discuss is price. But
telematics to their existing range of adding softer skills means the advice is more
products. We have been able to focus our personal and therefore more valuable.
attention on the telematics offering. We
have 40 000 policies with close to 60 000
vehicles tted with telematics. We believe
that the effects of telematics are being felt,
causing us to reach a tipping point: drivers
are driving better, and there is a dramatic
drop in accident rate for good drivers. We
regard telematics as your conscience in
your car we all need a nudge to stop
driving recklessly, and the rewards are
unparalleled. The intrusive Big Brother view
of telematics is pass part of the reason
is that we have not made having telematics
data negative by relating it to a claim.
Rather, we offer positive rewards for good
driver behaviour. In addition, drivers can
choose whether or not to have it installed.
93% of our clients have elected to do so, so
clearly; there is no issue around it violating
privacy.

48

Coffee_Feb.indd 1 2014/02/05 8:00 AM


How do you feel about the for the broker-based model to be more assist brokers to understand what risk
expensive, or there needs to be more control management is all about and help clients
protability of personal lines in the
over the insurers processes and costs. The understand their ability to manage their
broker environment? challenge is that the insurer does not even own risk. Brokers must understand what the
If you use intermediated insurers, you might know who the client is, so has no levers to heartbeat of the business is and to work
be very worried if you look at the last ve pull when things go wrong. Insurers need quickly.
years, where there has not been much prot, to take accountability for their results and,
and last two years have been particularly to some extent, need to take control. Lots How do you manage your own life
bad with an overall loss for the sector. This of business running at a loss is neither a to juggle all the demands?
has been a gradual decline, juxtaposed with sensible nor a sustainable business.
It is not easy to nd balance. I try to
the direct players being extremely protable
in the same space. So, the solution is either
Which levers are you focusing on maximise weekends we go away to our
to ensure protability in the motor family retreat. Over the last two years, we
have been building a company so there has
book? been extra demand. I take kids to school
We are making sure drivers drive better; three times a week, and ban the use of cell
reducing claim frequency is rst prize for us. phones in the car, so we have quality time
This, in turn, limits premium increases. Then, and I drive responsibly!
we are becoming proactive across the board I cycled the 94.7 race, and will participate
hailstorms are causing havoc, so we issue in the Argus. I wear my pedometer, so, as a
weather warnings, with a half-hour notice it Discovery Diamond client, I gain benets.
is not a perfect science, but we feel it had an Within our Discovery Exco teams, it is not
impact in the most recent storm. cool not to watch your health. I use the
New technology means that every driver has treadmill at home while I catch up on the
a unique ngerprint, and we can pick up a world, usually on CNN.
change in driving habits and phone the driver
to check the vehicle has not been stolen. And South Africa?
We aim not just to deal with consequences, I am hopeful about South Africa actually,
but try to prevent it. We focus on having less I am an optimist by personality. There are
fraud on our books with a strong forensics problems all over South Africa is just better
capability. Good clients end up paying for bad at focusing on the negatives too often. In this
clients, so fraudsters need to know they wont country, you can make a difference and live a
get away with it. Our general focus is on the good life.
right levers to make sure there is no waste
there is money to be saved, for exmaple, if a
client gets her car back quickly after a repair.

What role will brokers play in this


If your actions inspire and how are you engaging with
others to dream more, learn them to achieve this?
more, do more and become
more, you are a leader. Brokers need to work closely with insurers,
John Quincy Adams (1767- and must take advantage of the economy
of scale that the insurers can bring. We
1848); 6th US President

49

Coffee_Feb.indd 2 2014/02/05 8:00 AM


Short-term

Road safety talk


shifts into higher gear
BY ANNETJIE VAN WYNEGAARD

Since the Model T Ford rolled the Red Cross and Chairperson of the Baloyi said compulsory insurance will
Global Road Safety Partnership South force the effective assessment of
off the production line in 1908
Africa (GRSP); Gilberto Martin, Deputy vehicles risk prior to accepting cover,
weve come to accept that Director General of the Department of and this will deal with approximately
driving is dangerous. Motor Transport; and Howard Dembovsky, 740,000 vehicles that are either
vehicle accidents are the highest National Chairman of the Justice unroadworthy, unlicensed or both.
Project South Africa.
cause of death of young people Compulsory insurance is a powerful
between the ages of 18 and 25, The panel agreed that all stakeholders way to account for the size of the
should tackle the issue of road deaths vehicle population and to understand
and every 38 minutes a road
together. McKaiser said the media place where it is located for effective
accident fatality occurs. an irresponsible focus on road safety in monitoring and control. Zimbabwe
December. Martins agreed. We need has compulsory insurance on all their
With these words the CEO of Discovery vehicles.
a 365-day approach, he said. Road
Insure, Anton Ossip, opened the round
safety is not just about Christmas and
table discussion on road safety on
Easter, there are more deaths in July.
Wednesday 22 January. Ossip said that
mobility is a basic human need that is The biggest reasons for accidents are
vital for economic growth, so how can speeding, cornering, harsh breaking,
we make our roads safer and better? and driving at night, said Baloyi. The
most reckless driving takes place
He quoted the late Nelson Mandela, It
between 10pm and 4am, and a largely
only seems impossible until it is done.
ignored factor to bad driving is eye
Political analyst and PowerFM Power sight. He said that Discovery Insures
Talk presenter Eusebius McKaiser incentives and telematics technology
led the discussion between the four can help create safer roads for all. A
panellists: Themba Baloyi, Executive clear, collaborative approach is needed
Director of Discovery Insure; Professor from individuals, the private sector and
Sebastian van As, trauma surgeon at the public sector, he said.

50 COVER FEBRUARY 2014

February 2014.indd 50 2014/02/05 8:00 AM


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Untitled-1 1 2014/02/05 8:06 AM


Short-term

A large part of the population relies on interventions such as education and


public transport of which 156 000 are the use of appropriate incentives.
minibus taxis, and the people who are
most affected by road traffic accidents AFRICA IS FULL Rewarding people for measurable
are the poor. People think this is a driving behaviour is ten times more
game, said Martin, I lose 43 people in OF CHILDREN, WE effective than seeking to punish
one crash. someone when they are caught.
DRIVE AS IF THERE
Pedestrian compliance is a problem, He said there are two ways of
said Martin. Its all about people not ARE NO CHILDREN. prevention, active and passive. Active
buckling up, kids standing on front prevention is when the driver takes
seats. action, for example obeying traffic
2020. 8000 children die in South signs and buckling up a child, whereas
Dembovsky called for a change in Africa each year from unintentional speed bumps and barriers in the road
language about road safety. Accidents injuries, and 89% of children injured to prevent illegal overtaking are passive
are oopsies and unavoidable, he said, in car accidents were not wearing prevention. We need to focus on the
Crashes are avoidable. He said there seatbelts. In Europe the speed has passive rather than the active, said
is a general attitude among South been reduced around schools. Baloyi.
Africans that the government makes
enough money out of licences. Africa is full of children, said Van As, COULD INCREASING TRAFFIC
We drive as if there are no children. FINES, ASSURING PROPER
Baloyi said South Africans need to ENFORCEMENT, TURN THE TIDE OF
develop a mindset so deeply focused WHAT CAN BE DONE TO CHANGE TRAFFIC VIOLATIONS?
on getting better in everything we do, THE STATISTICS? Its like putting a band aid on a
including our driving. We are too nice, said Martin. Make sceptic wound, said Baloyi. The
the alcohol level zero. 0,2 is too important starting point is to clean
There are approximately 53 million debatable. Martin believes mobile the wound by creating programmes
people in South Africa, said Van As, 20 courts, name and shame campaigns, that deal with behavioural aspects
million of which are children. According and penalisation are necessary to curb of how we learn certain habits.
to the World Health Organisation reckless driving. Enforcement should be designed to
(WHO) trauma will be the number be self perpetuating and that will
one killer of children in 2020, and the Baloyi, however, said, Enforcement spread much quicker than forcing a
UN General Assembly has declared a has to be more inclusive and rigid structure on the society.
decade of action between 2011 and focused on real behavioural change

52 COVER FEBRUARY 2014

February 2014.indd 52 2014/02/05 8:06 AM


30115 MF_Integrated
Untitled-1 1 Offering_Broker_COVER MAGp.indd 1 2014/01/23 8:08
2014/02/05 3:09 AM
PM
Financial Planning

Fed speak turns


and to launch a range of new index
funds in the latter part of 2013 and
early 2014.

to fed action
The second trend is the rise of the
financial services consumer and the
potential for investment managers to
tap into a more savvy retail investor.
SI sees a lot of upside in the retail
segment as South Africa addresses its
rather lacklustre savings culture.

Investment managers will have to


tread carefully in the retail space in
order to comply with South Africas
stringent pro-consumer financial
regulations. While investment
managers are not subject to the
strict capital requirements that banks
and insurers are, there is a massive
obligation on us to ensure compliance
with pro-consumer regulation such as
the pending Treating Customers Fairly
(TCF) regime, says Van der Merwe. SI
has fully embraced the TCF principles
and has recently realigned its business
to operate in three distinct units
designed to offer the best possible
solutions to clients the divisions are
Sanlam Investments Retail, Sanlam
Investments Institutional and the
Investment Core.
What will 2014 hold for in assets is aware of the correlation
between investment managers profits
investment management, an The third and perhaps most lucrative
and market performance and has trend is that Africa is once again top
industry which has had an identified various opportunities to of mind for international investors.
indisputably rocky ride since the soften the blow as global markets The Sanlam Group has made moving
2008 global meltdown? transition from a period of fed speak into Africa part of its strategy and
to one of fed action. through Sanlam Emerging Markets
According to Johan van der Merwe, has direct business exposure to 13
First and foremost it is vital African countries (excluding South
Head of Sanlam Investments (SI), the
for investment management Africa). The group has enjoyed great
business of investing will continue to be
companies to have an investment success through joint ventures and
markedly affected by both the talk and
actions of the US Federal Reserve in philosophy that they stick to, says partnerships with established financial
the New Year. The key to success for Van der Merwe. This philosophy services players in each of these
investment managers lies in pursuing is their anchor during periods of markets.
opportunities to expand assets under market turmoil. SI applies a value
management and diversify revenue investment philosophy regardless of From an investment perspective
streams. For us, the 2014 priority list what stage of the market cycle they we have also leveraged the African
includes Africa, passive investing and are in. reawakening via a range of Pan
the South African retail market. African funds, says Van der Merwe.
From an operational perspective, Van The groups Pan African Equity Fund
Van der Merwe says it will be difficult der Merwe singles out three trends that and Pan African Property Fund have
for investment managers with an South African investment managers been well received, with a Pan African
emerging market bias to sidestep the can leverage over the next few years. Credit Fund set for launch in the
quantitative easing (QE) juggernaut. coming year.
The first is that South Africa is behind
We know that QE tapering is on the
table and have already witnessed the the international curve where passive We have been investing in African
ripple effect of its announcement on investments are concerned. Passive credit over the last four years off
emerging markets. But we are limited investment will continue to take off our own balance sheet and have a
with regard to the steps we can take to locally, especially in a low income and very good track record, he says.
mitigate the inevitable fallout. return environment where the cost of This experience, coupled with our
managing funds becomes an issue, 13-country African footprint, makes
Sanlam Investments the investment he says. This belief is borne out by SIs for a powerful argument when
division of the listed Sanlam Group decision to acquire 100% of exchange approaching investors to support our
which manages almost R700 billion traded fund provider Satrix in May 2012 Pan African funds.

54 COVER FEBRUARY 2014

February 2014.indd 54 2014/02/05 8:08 AM


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Untitled-1 1 2014/02/05 8:08 AM


New beginnings in 2014
ASIAS SLOW-DOWN American and European growth from STEEN JAKOBSEN
Most Asian countries, like China, 2009 to 2013 was kept higher than Chief Investment
are pursuing a strategy of weaker business cycle would dictate by Asias Officer at Saxo Bank,
currencies, lower import and lower over-investment. China did almost writes about trends and
potential upsets in 2014.
growth, as reducing the shadow US$600 billion of fiscal expansion in
economy takes centre stage in Asia. 2008 those investments came back

56 COVER FEBRUARY 2014

February 2014.indd 56 2014/02/05 8:09 AM


Financial Planning

to the US and Europe through rising This change is nothing new. The trend Producer Prices continues to trend
export orders. To normalise investment has been in place for a few years, and lower both in China and Germany
to GDP ratios in Asia could cause lower this is in my opinion the reason for two or the world most impressive
inflation and lower export volume for slower growth in the world and the exporters.
the high flying export companies of the deflation risk. HSBC here shows how
world. growth and investment to GDP have POSITIVE SURPRISE ECB GOES TO
changed pre-crisis versus post-crisis. FULL QE
CHART 3: HSBC Global Research, 6 If Im right the European Central Bank
December 2013 GDP growth and will issue full Quantitative Easing. If Im
the investment-to-GDP ratio: good THE WIDENING GAP MEANS wrong market will return 10 to 20%
growth is linear correlation indicating GROWTH IS FALLING DUE TO based on recovery.
investment return is positive and
creating growth. Bad growth is rising
FALLING INVESTMENT RETURNS. There is no doubt that the ECB and to
investment to GDP ratio while growth some extend the German government
trails. CHART 4: In China and India growth helped the market when it has been
and rising investment are falling. needed, but is it safe to assume it will
The widening gap means growth China and India will provide less input help again? Jrg Asmussen is now a
is falling due to falling investment to world growth and a country like junior labour market minister in the
returns. The easy part of Asian growth Indonesia is having a tough outlook new German government.
is done. Japan grew approximately 10% with falling growth and investments.
per annum in the 1960s and 70s, 4 to No wonder IDR has been one of the NEGATIVE SURPRISE EUROPEAN
5% in the 1970s and 80s, and close to weakest currencies in the last six PARLIAMENTARY ELECTION IN
nothing in the 90s and 2000s. months. MAY
The European election normally makes
In 2012 world growth was 4,0%: 36% investors and voters eyes glaze over,
of this came from China directly, 24% but this could be different. Not only is
came from the rest of Asia. the Far Right and Far Left gaining in
most opinion polls in general anti-EU
DEFLATION
mood, but now they have a common
Barclays have estimated the chances
theme: welfare tourism.
of European deflation as a 50% using
inflation linked products, but I think the Government and pro EU
next three to six month will push more parliamentarians are hiding as the
and more European nations close to expansion of Europe includes free
zero inflation. Greece and Ireland are labour market movement for Bulgarians
already in deflation, Spain, Sweden and and Romanians, who go to northern
Denmark are very close, and for the Europe seeking job, failing and then
investors fearing inflation in Germany claiming benefits. This upsets the
on the back of the so called labour labour unions, the far left and the far
market reforms, the surprising drop
right.
from 1,4% to 1,2% must have been a
positive surprise.

COVER FEBRUARY 2014 57

February 2014.indd 57 2014/02/05 8:09 AM


Financial Planning

resolutions for
comfortable
retirement

STEVEN NATHAN
Chief Executive Officer
10X Investments, shares his five
retirement investing resolutions.

According to the South African


National Treasury, only 6%
of the population will have
accumulated enough money to
retire comfortably without having
to sacrifice their standard of
living. World Health Organisation
(WHO) statistics reveal that
people around the world are
living longer, which adds to the
challenges of providing enough
for retirement. be set aside for old age. Work towards inflation. You can then switch to a
a minimum replacement of 60% of more conservative portfolio five years
With the renewed emphasis on your final salary, or around 10 times before retirement.
retirement this year, advisors can urge your current annual salary.
clients to do the following: 4. Implement a strict savings regime
2. The lower the fees, the greater You should be saving at least 15% of
1. Set a retirement goal the retirement pot your monthly salary for 40 years to
In order to begin saving for retirement, Watch out for high fees. You should build a sufficient retirement pot. Avoid
you need to clearly quantify your goal. always ensure that you are paying low the temptation to defer savings or cash
Calculate how much money needs to fees, certainly no more than 1,5% and when changing jobs. Save as much as
preferably below 1%. Why? If you can you can for as long as you can.
save 1% in fees, your final pension
amount would increase by about 30%. 5. Compound interest is your best
A recent National Treasury study found friend
that if individuals could reduce their Stay the course. Ignore short-term stock
fees from 2,5% to 0,5% they would be market volatility and the distraction
able to double their final pension. of market commentators that often
encourage investors to switch funds
3. High equity investment strategy or change their savings strategy based
Have an age appropriate investment upon recent events. Your goal is to
strategy. Invest 75% in growth assets, maximise the size of your investment
such as listed shares and property, to at retirement and not to worry about
reach your goal and generate a return short-term stock market volatility, which
of between 5% and 6% per year above is unpredictable and unavoidable.

58 COVER FEBRUARY 2014

February 2014.indd 58 2014/02/05 8:09 AM


ARNOLD
Investors looking for Married with children.
Main breadwinner.
real returns pile into Loves his job.

multi asset funds


Despite South African equities MEYER COETZEE
Head of Retail at Prescient Investment
having appreciated by around Management, gives insight into risk
160% since the end of the first management for retail investors.

quarter of 2009 thats about Another factor driving money to


22% a year retail investors balanced funds is that, under the
dont seem too concerned Financial Advisory and Intermediary
Services (FAIS) Act, they represent
about when the party might a safer bet and less risk for advisers
end. selecting funds for their clients.

That being said, for long-term With 1,025 collective investment


investors, real growth is important schemes to choose from, it is no
more so than worrying about surprise that the average retail investor
shorter term volatility. This means is looking for help.
that exposure to equities is desired.
The good news is that the road to
At present, the retail investors tend
financial solace is not as complex as it
to opt for balanced funds, a sensible
seems.
strategy given economic and market
conditions, and the need for long term Appoint a qualified adviser to identify
real returns. needs and determine risk and return
objectives as part of a holistic financial
According to statistics from the plan, and then pick a reputable asset
Association for Savings and Investment manager to manage your assets.
South Africa (Asisa) for collective
investment schemes, the SA multi- For investors concerned about the
asset category of unit trusts enjoyed relatively high level of share prices,
inflows of R35 billion in the third risk can be managed by incorporating
quarter of this year and R110 billion in downside protection in portfolios.
the 12 months to end September. By avoiding large draw-downs and
sharing in the upside when markets
This made it the most popular run, wealth is created by compounding
category with investors in multi-asset positive returns over time.
funds now accounting for around 44%
of the industrys total assets of R1,3 Similarly, where offshore investments
trillion. are concerned, a major risk lies in
the Rand strengthening against major
Multi-asset, or balanced funds, typically foreign currencies, as seen in the years
offer lower volatility than pure equity following the end of 2001.
funds and diversification benefits, by
During periods of Rand strength
investing across all asset classes, locally
offshore investments lose value in
and abroad. Diversification enhances
Rand terms, all other things being
efficiency, which means higher returns
equal. That makes the decision to
per unit of risk or the expectation of take money offshore at the current
protection against significant capital exchange rate more difficult, despite
losses in volatile markets. the well documented benefits of
diversification and attractive valuations
While strong past investment
offshore.
performance has played its role in
attracting investors to balanced funds, Foreign asset exposure and currency
they have also been aggressively risk can be managed using derivatives.
promoted by some of the larger, better Prescients investors are smart and
known fund managers making appreciate the benefits of participating in
investors more familiar with names the markets, while enjoying the peace of
and products. mind that risk management brings.

COVER FEBRUARY 2014 59

February 2014.indd 59 2014/02/05 11:03 AM


Financial Planning

Winners become losers


in the great profit trap
Local investors, flush with equity
gains over the past two years,
are fast approaching a pitfall
with the potential to turn big
short-term winners into long-
term losers.

Three factors will spring the trap:


eagerness to take profits off the
table, concerns about possibly
expensive levels reached in recent
weeks by the JSE, and uncertainty
around future market direction.

In uncertain times, a certain and


substantial cash profit looks tempting,
but cashing in and exiting the market
could be wealth-depleting in the long
term.

The Absa team is often consulted by


high net worth individuals looking to
build or preserve wealth in challenging
conditions.

Some investors have made 40% or


50% gains the last 18 months or two
years, thanks to major exposure to
local equities. With the JSE at record
levels and the JSE P/E ratio at 19 times
earnings, some significant winners are
now becoming restive.
not to liquidate totally into cash an
But no one can predict market asset class subject to severe attack by
movements. Markets may look taxation and inflation. CRAIG PHEIFFER
expensive, but that does not mean the Head of Private Client Asset
next big movement will be down. Even Clients who rebalance their holdings Management at Wealth & Investment
maintain significant equity allocations Management, Absa, alerts investors
if there is a pullback, the long-term
while seeking income-enhancing against cashing out too soon.
investor with a well-motivated strategy
usually does better in the market than opportunities elsewhere in the market.
out.
One option is corporate bonds linked
When the market moves higher, to the Jibar rate as the rate is reset
you want to be invested in it and every quarter, while capital is reset to Another option is inflation-linked
positioned to take advantage early in 100 at the same time. Should interest bonds. Some take a positive long-
the upturn. Get in late, and you miss rates move higher, the investor is not term view on preference shares (a
the big wealth-enhancing movements. penalised by a long lag before the poor performer recently). However,
uptick is reflected a disadvantage they may now be near the bottom and
In these circumstances, the profit-taker faced by fixed deposits and one-year would benefit from any interest rate
who headed for the exits misses out. negotiable certificates of deposit. rise.

Portfolios can be rebalanced while Listed property as an income is You cant time your way to wealth,
remaining in the market. The net favoured by some as the forward yield not even on the back of good profits.
effect may be to reduce some equity is 6% to 7% while distributions show Down the years, the market rewards
allocations, but the client is careful growth in the same range. loyalty. Stay in it.

60 COVER FEBRUARY 2014

February 2014.indd 60 2014/02/05 8:10 AM


...THE
Does size matter TERMINATED
and why? No one expected the wave
of retrenchments.
The case for boutique asset managers
With a rise in the number of MARK VAN DER WALT
Business Development at Cannon
boutique managers, globally Asset Managers, finds that size
and domestically, investors really does matter, and looks at how
investors can take advantage of this.
are faced with the age-old
question, does size really BOUTIQUE MANAGERS ARE
matter? Research from ASSET MANAGERS, NOT ASSET
around the world suggests GATHERERS
Boutique managers are typically
that smaller, boutique-type
owner-managed with committed
managers outperform their investment professionals having skin
larger counterparts by anything in the game. Control of such firms
between 1% and 2,5%, generally lies in the hands of the
investment professionals, which helps
depending on the particular ensure the firms investment DNA is
geographical region studied. protected from outside influence and
dilution. Such firms also have small
Studies have shown that two investment teams with investment
managers producing returns of 10% professionals holding a genuine
and 12,5% per annum respectively passion and belief in the investment
will result in a 56,7% differential in philosophy.
return over 20 years.

When this size advantage is In most cases, these managers are


combined with the value investment willing to (and do) limit growth in
style, evidence suggests that the assets, preferring to concentrate on
performance advantage becomes alpha generation rather than asset
even more significant, and a gathering. Boutique managers tend
compelling case can be made for to be asset managers as opposed
boutique managers, favouring a to asset gatherers. Portfolios also
value approach to investing. display some common characteristics.
Typically, they are more concentrated

COVER FEBRUARY 2014 61

February 2014.indd 61 2014/02/05 8:10 AM


Financial Planning

62 COVER FEBRUARY 2014

February 2014.indd 62 2014/02/05 8:10 AM


...IS BACK
with fewer stocks held and often have a smaller/medium cap focus. This
leads to higher levels of active risk and active share, two important
components in alpha generation. Furthermore, boutique manager portfolios
tend to look different from the herd. In the words of Sir John Templeton, It
is impossible to produce superior returns unless you do something different Arnold was prepared.
from the competition.
He had Altrisks new
BOUTIQUE MANAGERS EAT THEIR OWN COOKING
There is a body of evidence which demonstrates the advantages of investing
Retrenchment benet
with boutique asset managers. that pays a lumpsum
In their 2006 study Portfolio Manager Ownership and Fund Performance, of up to ve times his
Khorana, Servaes and Wedge found that funds with manager ownership
produce annual outperformance of 1,4% over funds where the manager has monthly salary in case
no ownership. Managers who eat what they cook perform better than those
who dine out. of retrenchment. Which
In a study of US mutual funds, Baks, Busse and Green (2006) showed that gave him the nancial
the average fund held 128 stock positions. But the top-performing funds security he needed while
held less than half that number. This leads to the obvious question about
risk: do concentrated portfolios lead to increased riskiness of portfolios? The he was unemployed.
evidence suggests not. One needs to examine whether or not the manager
is building a portfolio with enough uncorrelated shares to diversify away
company-specific risk, yet not so many shares that the portfolio starts
hugging the market. Paradoxically, active managers hoping to reduce risk Tell those like Arnold
by running portfolios with a large population of shares increase the risk that
their fund will underperform the benchmark after fees, trading expenses and
about Altrisks
other frictional costs such as the bid-offer spread. Retrenchment benet.
Active share, a term introduced by Cremers and Petajisto in 2009, Because everyone needs
describes the proportion of a fund which does not overlap the benchmark
index. Those managers with higher levels of active share are best able to a chance to make a
significantly out- (or under-) perform the benchmark. In their study of 2,650
US fund managers between 1980 and 2003, Cremers and Petajisto found comeback.
that those funds with active share in the highest quintile (above 80%),
outperformed the benchmark by around 1,5% per annum.

Figure 1 below shows that the number of truly active managers has declined
For more information
significantly over the period the highest active share quintile (90-100%) speak to your Altrisk
fell from 60% in 1980 to 19% in 2009 with indexers and closet indexers
accounting for an astonishing 50% of the universe (up from 1,5% at the broker consultant or go
start of the period reviewed).
to www.altrisk.co.za
As managers become larger, their size constraint forces them to reduce their
active share components and their portfolios begin looking more like the
index.

FIGURE 1: ACTIVE MANAGERS BECOMING A SCARCE BREED (SEE FILE)


Were your type
A similar picture exists in the South African market where the average of risk insurer.
active share is 45% and the median manager is 39%. In other words, the
SA market is dominated by indexers and closet indexers. Cannon Asset
Managers active share of 84,5% sets the company apart from most
managers in South Africa.

FIG 2: ACTIVE SHARE IN SOUTH AFRICA (SEE FILE)


SO HOW CAN YOU BEAT THE MARKET?
For investors wanting to be among the few who do beat the market,
the most successful route would be to select a boutique asset manager,
preferably one who swims against the flow, with the ability to provide
returns which differ from market returns. Evidence shows that value
managers are best suited to this, over the long term.

Cannon Asset Managers is a niche investment management company that


has successfully applied the philosophy and principles of value investing,
an investment management approach that has consistently demonstrated
a clear advantage over other philosophies. The company has a level 2 BEE
rating.

COVER FEBRUARY 2014 63


Altrisk is a division of Hollard Life Assurance, an authorised
nancial services provider (FSP 17697).

February 2014.indd 63 2014/02/05 8:10 AM


Financial Planning

Understanding
quantitative
management
Sometimes misunderstood,
quantitative investment
managers, unlike traditional
asset managers, do not
indulge in forecasts or
undertake site visits. Instead,
quant managers look
at current market pricing
with a view to buying
assets that their valuation
methodologies deem offer
value.

Quantitative investment
ELDRIA FRASER
Chief Investment Officer of Prescient
managers tend to have
Investment Management, writes smaller investment teams,
that a lack of understanding about allowing for lower costs to
quantitative management has led to be passed on to clients. capital preservation, low or negative
incorrect perceptions of complexity. Additional savings come from not correlation with other portfolios, and
having to pay analysts to undertake lower costs.
fundamental research, while in
Prescients case, costs are also An active beta strategy can also be
With the cost of professional applied where allocations are made away
contained by controlling portfolio
asset management services in transactions. from a benchmark, using a pragmatic
the spotlight, particularly in the approach which includes valuation and
Quantitative investing lends itself to behavioural-based strategies in order to
context of governments drive to the development of simple and cost deliver out-performance of the index.
reduce the impact of fees and effective equity, interest bearing and This is a way to make back the cost of
expenses on retirement benefits, balanced products. These can be used investing and more.
on their own as stand-alone solution
managers with a quantitative There is a strong role for quantitative
funds, or in combination with other
approach to investments are funds to construct a well-diversified investment in the context of retirement
likely to find growing acceptance balanced portfolio. These portfolios fund reform, because managers are
generally blend well with traditional able to create cost-effective, broad-
in the South African market. based and simple products.
portfolios due to their focus on risk and

64 COVER FEBRUARY 2014

February 2014.indd 64 2014/02/05 8:11 AM


State pension plan vital,
despite societal challenges
The governments new Pensions ANITHA GIRIDHAR
Associate Director of FIST
Bill, effective from 2014, will Pension Fund at Deloitte
contend with major problems,
the most pressing of which is an
unemployment rate of around
25% and an informal sector that
falls outside the ambit of any
savings pool.

Added to these is the poor savings


culture and South Africans habits of
cashing in savings when changing jobs
or paying off debt using potential
long-term savings for short-term
benefit. This carries the likelihood of
building a nation that is exceptionally
poor at preserving assets and income
for the future.

The low priority accorded to savings is


reinforced by a 2010 Financial Services
Board report which found that an
estimated 12 million people in South
Africa, from a population of about 55
million, have any form of retirement
savings.

Ultimately, the low usage of preservation


funds for potential retirement funding
leaves not only individuals vulnerable,
but also the state. The responsibility
is therefore on the state to cater for
vastly increased numbers of people
relying on social grants, and to provide
opportunities for creating an alternate
income stream during their old age.

A recent survey conducted by a benefit


administrator found that less than 5%
of pensioners were confident about not
depleting their savings by the time of
their deaths. Therefore, up to 95% could
find themselves relying on social grants
as they age and their funds are depleted.

Lauren Billett, Senior Manager of


Actuarial and Insurance Solutions at
Deloitte, has found that globally the
average time spent in retirement is
now 18 years. Internationally funds
accumulated by pensioners are expected
to last for 10 years, meaning that most
retirees have a savings shortfall of 56%.

COVER FEBRUARY 2014 65

February 2014.indd 65 2014/02/05 8:11 AM


Financial Planning

Even though the government is accumulation of funds in one


taking steps to change the context place. The Bill needs to address
of retirement funding, a cautious ...UP TO 95% COULD FIND issues that include:
approach is required. Consultation with Themselves relying on sociAl
various industry bodies will have to The status of accrued rights not
take place before a final strategy plan grAnTs As They Age And being impacted on and available
is implemented by government. Their funds Are depleTed. to members leaving their current
employer;
National Treasurys retirement reform
is a step in the right direction as more Addressing the significant
sectors of the population need to be administrative requirements that
brought into the realm of a compulsory could arise as a result of this
saving scheme. Caution needs to be approach;
applied in implementing the reform
framework, with an emphasis being The impact on final savings
placed on governance, administration, when withdrawing savings in
education of members and structural cash prior to retirement;
transparency.
The development of a scheme
Major lessons can be learned from that discourages withdrawals.
examining funds preservation
experienced in other markets. Two Though there may be issues
major issues have been people around pension reform that
withdrawing funds before reaching a have to be debated before they
defined age, and people who move are formally acted upon, there
jobs regularly, losing track of their small is no doubt that some form of
pots of savings. retirement reform that encourages
preservation is a must for our
The state imposed retirement fund nation of non-savers. Failure to
introduces measures to ensure ease implement this could be costly for
of transfer of small pots of retirement the nation as a whole.
savings, thereby allowing easier

66 COVER FEBRUARY 2014

February 2014.indd 66 2014/02/05 8:11 AM


Emeritus Reinsurance Company
SA Limited embraces a Pan African
business model as we join the competitive
South African insurance industry.

Tel: +27 11 783 8517 / +27 11 783 6549


Fax: +27 11 783 5440
info@emeritusre.co.za
www.emeritusre.co.za Enterprising Reliable Solutions
Enterprising Reliable Solutions

Untitled-1 1 2014/02/06 3:35 PM


Risk Management

Evolution of
the Risk Manager
The transition that a risk IN MANY CASES,
manager must make into a risk
influencer, is a critical evolution. RISKS ARE NOT
This has become a key resource
SINGLE EVENTS...
in adding strategic value to the
organisation.
Management, also provides the tools
Previously, it was often consigned to to evaluate multiple risk scenarios,
the narrow fields of hazard and health using data, analytics and portfolio risk
and safety factors, associated with analysis.
the risk transfer industry of insurance.
The alternative view, however, is that With risk exposures needing to be
risk management should be closely evaluated against risk appetite and
associated with the strategic resource tolerance, it needs to be kept in mind
allocation and decision-making that the sum of the strategic risks in
processes of organisations. any organisation will often exceed its
total financial risk bearing capacity. VOLKER VON WIDDERN
In many cases, risks are not single MD of Marsh Risk Consulting, discusses
events they challenge accepted It is thus important to align the how the risk manager in an organisation
business models and the risk organisations strategic objectives, has evolved into a risk influencer. With
solutions should include new business its strategic risk exposures and its more complexity in risk, there is a calling
processes and alternative risk transfer medium- to long-term financial for innovation and creative thinking.
methodologies. Marshs 10th paper capacity, in order for value-adding
on Excellence in Risk Management: and business development goals to be
Delivering Strategic Value Through Risk sustained in the medium term.

68 COVER FEBRUARY 2014

February 2014.indd 68 2014/02/05 11:20 AM


Collapsing buildings give
heads up to insurance industry
Last year the collapse of a ZURIEL NAIKER
to provide financial protection. Insurers
Divisional Director, Etana
building under construction in Construction & Engineering are in business to pay claims and
Tongaat, KZN, and another in protect people against financial ruin.
Lagos, Nigeria, highlighted the Brokers have a key role to play in
importance of consistent and Every contractors all risk policy has a protecting their clients from vulnerability
informed risk management and general condition called the prevention and are a valuable source of information.
of loss clause. The clause is usually Contractors need to check current
legal compliance on construction
found at the beginning of the policy regulations with experts regarding
sites. The collapsed building in wording, before the specific cover municipal by laws or construction
Lagos, Nigeria left 25 people (contractors all risk, liability etc.) is regulations. The Master Builders
dead. Two people died and a outlined. This clause outlines that Association (see contact details below)
number were injured in Tongaat. the insured is required to comply provides training and updates to keep
and adhere to the (active) laws and abreast of this evolving environment.
Risk management on a construction regulations which are material to
site are that much greater than in a the risk, regardless of when they With South African insurers increasing
static building. The structure is evolving were enacted. Even if a law was involvement in other African insurance
on a daily basis as the building is introduced after the commencement markets, there is also a strong need
manufactured with the risk increasing of the contract, the insured company to understand and appreciate the
incrementally as the building moves or person must make sure that they regulatory framework within those
towards completion. comply. countries and ensure that any potential
gaps are considered during underwriting.
Contractors must be aware of the The risk of not complying is that the
potential ramifications of poor risk insurer may be entitled to reject a Doug Michell is Construction Health and
management on site and non- claim in its entirety if the insured has Safety manager for the Master Builders
compliance with legislation, it can failed to adhere to an applicable by- Association (MBA) north. He can be
compromise insurance cover and law, law or regulation and it is material contacted on dougm@mbanorth.co.za,
financial protection. to the loss. The purpose of insurance is 011 805 6611.

COVER FEBRUARY 2014 69

February 2014.indd 69 2014/02/05 8:12 AM


Risk Management

Manage risk with healthier


and safer supply chains
Global organisations recognise currency fluctuation, market changes JONATHAN CAWOOD
and volatility in the fuel price to Strategy & Operations Leader
that supply chain disruptions for PwC Southern Africa
uncontrollable natural disasters.
can affect a companys bottom
line and financial performance, to benefit from growth in Africa, they
according to a report conducted must beneficiate and distribute raw
by the Massachusetts Institute of SUPPLY CHAIN materials and finished products across
a broader and complex supply chain
Technology (MIT) and PwC. OPERATIONS ARE MOST
network.
SENSITIVE TO RELIANCE
Despite this stark reality, 60% of They must know where to play in
companies pay marginal attention ON SKILL-SET AND their industry value chains, consider
to risk reduction processes. These EXPERTISE (31%)... new business processes and operating
companies are categorised as having models, form new partnerships,
immature risk processes. They mitigate leverage from existing ones, and
risk by either increasing capacity or embrace digital platforms to build
strategically positioning additional supplier and customer channels. They
inventory. Only 40% of organisations have mature must consider legislation and rules of
processes they invest in developing operating across multiple jurisdictions.
The survey shows that most of these risk reduction capabilities.
companies focus either on maximising Over the past three years supply
profit, minimising costs or maintaining The survey shows that companies chain networks have increased,
service levels. Stressed supply chains that invest in supply chain flexibility dependencies between entities and
coping with cost, competitor and are more resilient to disruption than functions have shifted, the speed
quality challenges are vulnerable to mature companies that dont. of change has accelerated and the
disruptions from natural or manmade level of transparency has decreased.
forces. Supply chain disruptions can An organisations capability maturity
Developing a product and getting it to
damage profitability, shareholder value was determined by a supply chain and
market requires more complex supply
and even reputation. risk management capability maturity
chains needing a higher degree of
framework. This framework assesses
coordination.
how companies apply the most
effective enablers of supply chain risk The risks to global supply chains vary,
reduction flexibility, risk governance, with organisations citing fluctuations
ONLY 40% OF ORGANISATIONS integration, information sharing, data in raw material prices (53%), in
models and analytics and rationalisation currency (47%) and market changes
HAVE MATURE PROCESSES and their associated processes. The (41%) as the top three risks. Supply
THEY INVEST IN DEVELOPING model depicts where a company is chain operations are most sensitive
positioned relative to its competition to reliance on skill-set and expertise
RISK REDUCTION CAPABILITIES. and industry. (31%), price of commodities (29%)
and energy and oil (28%). 82% of
In South Africa, recent research by PwC
respondents said they had a business
indicates that fears about supply chain
continuity plan ready to reduce the
The Supply Chain Risk Management disruption among CEOs have grown with
exposure of their supply chain to
Survey analyses the supply chain a third expressing concern about this
potential disruptions or to mitigate the
operations and risk management risk. South African CEOs are reluctant
impact.
approaches of large companies and to abandon cost-cutting initiatives until
looks at their operations and financial the economy is stable. Last year cost Flexibility is crucial to a companys
performance in the wake of supply reduction initiatives have remained the ability to adapt to change. Managing
chain disruptions. A total of 209 global most prominent restructuring activity in supply chain risk is critical for all parts
companies completed the survey. The corporate South Africa. of the business product, design,
study proposes a framework and a development, operations, people and
Africa has exciting investment and
set of principles to assist organisations customers. Healthier and safer supply
trade opportunities, but undeveloped
to mitigate these risks. Global chains are vital for business continuity
logistics infrastructure and under-
organisations are exposed to high-risk now and will pay off as a strategic
capacitated utility providers create risks
scenarios ranging from controllable competitive advantage when the
for reliable and cost effective supply
risks raw material price fluctuations, economy recovers.
chains. For South African businesses

70 COVER FEBRUARY 2014

February 2014.indd 70 2014/02/05 8:12 AM


We are insured.
TM

Insurance for business, families and individuals acegroup.com/za

What does it mean to be ACE insured?


My broker and I have access to local experts who truly understand my risks and
go the extra mile. We work together with people at ACE on everything from loss
prevention advice to paying my claims. I can get on with growing my business,
knowing Im protected by one of the largest and strongest insurers in the world.

**ACE Travel Insurance is issued and underwritten by ACE Insurance Limited (1973/008933/06), a registered Financial
Services Provider (FSB 00060/01 FAIS 27176). Inall instances the terms and conditions of the policy wording apply.
ACE only provide general guidance (advice), and do not consider your objectives, financial situation or needs.

Untitled-1 1 2014/02/05 8:16 AM


0007-ACE corporate Print ad_Umbrella.indd 1 2013/11/06 4:23 PM
Governance

Business compliancy
made affordable
The value of commercial legal and challenges when it could be better
protection insurance for SMMEs is spent on production and revenue
that business owners have access to generating opportunities.
legal advice, support and infrastructure
to ensure compliance on all levels, The small business landscape is,
without breaking the bank. Sharon however, not entirely bleak. Select SA
Paterson, CEO of Inifinit Insurance also legal insurance underwriters are playing
argues that, It also frees business a pivotal role in putting affordable legal
owners to focus on actual business services within the reach of all SMME
activities, without having to waste their business owners in South African.
time trying to resolve legal problems

SUNETTE BRITTZ
Divisional Head of Infiniti Legal Sense,
outlines legislative risks business owners
of South Africa face as they grapple
with ensuring compliance to regulatory
requirements, adherence to labour laws
and consumer protectorate directives.

Being the master of your own EXAMPLES OF COMMON


destiny is very appealing to
DISPUTES:
a budding entrepreneur, but
A supplier who does not supply the correct
its certainly not for the faint-
service or goods and your business suffers
hearted. Being prepared, as a result.
however, is half the battle won.
A business partnership or trading
Ever-changing regulatory legislation relationship goes sour and matters need to
could see an entrepreneur crippled be settled.
by a simple labour or client dispute.
Businesses are exposed and this A customer does not pay for your services
exposure seems to be increasing as our or products and it is too expensive, or you
country and economy develops. Small, do not have the legal expertise at hand, to
medium and micro enterprises (SMME) recover the money owed to you.
are required to comply with a myriad
of legislation covering a vast number of
An employee committing fraud / giving bad
areas, and professional legal assistance service under your companys name.
is necessary in order to become , and
An employee stealing your customer base
stay, compliant. With the cost of having
or breaching the terms of their contract and
access to legal representation and
taking business away from your company.
advice being high, most SMME owners
simply cannot afford to be compliant. Debtors not paying you, which means
taking legal action against them.
Businesses are thus left wide open to
risks when confronted with compliancy An employee takes your company to the
issues, having a negative impact on CCMA for unfair dismissal.
South African enconomic growth and
job creation.

72 COVER FEBRUARY 2014

February 2014.indd 72 2014/02/05 8:16 AM


Psst, have you JANA VAN ZYL

heard about POPI?


Partner at Dommisse Attorneys

The imminent Protection of Many retailers communicate with card slips. Retailers would have to
their customers via social media retrain their employees in preparation
Personal Information (POPI)
platforms like Facebook. The fact that for POPI about the importance of
bill means retailers must information has been made publically safeguarding personal information.
be prepared to deal with available does not mean that POPI
wont apply. If the company wishes to POPI also has implications for future
customers questions about HR activities. These will for example
collect data via their Facebook page,
personal information that they they would still be responsible for include revising current policies and
are collecting, why they are securing and protecting that data once employee contracts. Although this may
they start processing it, and they would be a costly exercise most retailers see
collecting it and how they intend
still have to limit their use, disclosure the Act as a positive introduction to
to protect it against abuse. and retention of that information in their systems.
line with the purpose for which they
POPI provides a wide definition Retailers should liaise with an attorney
collected it.
because this includes diverse forms as a first step to becoming compliant
of data addresses, ID numbers, cell Security is a concern for retailers who with the Act.
phone numbers, biometrics and even frequently receive and retain sensitive
personal views on certain issues. hard copy information, such as credit
It differentiates between normal
personal information, special personal
information (such as health) and
childrens personal information all
of which have different rules that will
apply to the processing of the personal
information. There isnt a defined list of Remember requirements of
information that retailers are prohibited
from collecting, but as a rule of thumb, POPI with CLAAP:
businesses should only collect what
Consent: Organisations may only collect, use and
is necessary for them to achieve a
disclose personal information with the knowledge
specific purpose which should be
and consent of the individual. (In some instances
communicated to customers.
organisations will be able to use personal
One example is the use of ID information even though they have not received
documents to verify a customers the express consent, but mostly organisations
identity. The retailer has to justify why will still need to notify the individual that the
they need to collect the information. information has been collected.
They should only use it for the original
Limited use: The collection of personal
purpose. For any other purpose, they
information is limited to what is necessary for the
will need to notify the customer.
identified purposes and must be collected by fair
Consent does not always have to be and lawful means.
given in written format. It is important
Accountability: Retailers are accountable for
to bear in mind what the expectation
protecting the personal information under
of the individual would be what can
their control and must ensure that adequate
the retailer use the information for?
safeguards are in place.
Similarly, if a customer has signed up
Access: An individual has the right to access his/
for a loyalty programme, the retailer
her personal information, subject to legislated
is entitled to track their purchases
exceptions, and has the right to seek correction
and use it to promote products in the
of information or the withdrawal of permission.
future based on buying behaviour
provided that they received consent Purpose: The purposes for the collection of
to do so when the customer signed personal information must be identified prior to
up or notified the customer that the or during the collection.
information would be used for that
purpose.

COVER FEBRUARY 2014 73

February 2014.indd 73 2014/02/05 8:16 AM


Legal

Divorce and LIZE DE LA HARPE


Legal Advisor

pension interest
Glacier by Sanlam

SecTioN 37A of The husbands pension interest. However,


the order did not name the fund or
PeNSioN fuNdS AcT refer to pension interest as defined
in the Divorce Act. The settlement
PROTECTS A MEMBERS agreement only referred to policies
which shall continue to be paid by
PeNSioN beNefiTS the member until maturity date when
the policies will be paid out in equal
from crediTorS, ANd shares. The complaint was therefore
limiTS A fuNdS AbiliTy dismissed.

To deducT AmouNTS In the recent case of Bowyer vs


Personal Portfolio Preservation Fund
FROM A MEMBERS the Adjudicator stated that the fund
should not have complied with the
PeNSioN iNTereST. divorce order which did not comply
with the requirements. Adjudicators
insist on strict compliance with the
requirements before giving effect to a
endorsement in its records about the divorce order in which pension interest
non-member spouses entitlement to a or parts thereof are allocated to a non-
portion of a pension interest and (ii) to member spouse.
pay such portion to the non-member
IN SUMMARY
spouse in accordance with his or her
Recent Adjudicator decisions Divorce orders not meeting the above
choice. All of this must be claimed for
conditions are not in compliance with
have highlighted the importance in the summons (and accompanying
the Divorce Act read together with the
of ensuring that divorce settlement agreement, if applicable).
Pension Funds Act, and are therefore
settlement agreements and Section 7(8) of the Divorce Act, read not enforceable against the fund. The
accompanying orders are drafted together with section 37D(4)(a) of the fund is strictly bound by the Pension
Pension Funds Act, sets out certain Funds Act and has no discretion in
strictly in line with the Pension this regard. Funds and administrators
conditions with which a divorce order
Funds Act 24 of 1956, read must comply for the fund concerned to must act with caution when receiving
together with the Divorce Act 70 give effect to the claim. requests for payment in terms of a
divorce order and must ensure that
of 1979. THE ORDER MUST: payments are always made in terms of
Provide for the non-member spouses a valid court order.
Section 37A of the Pension Funds Act entitlement to a pension interest as
protects a members pension benefits defined in the Divorce Act; If your divorce order is found to be
from creditors, and limits a funds unenforceable against the fund in
ability to deduct amounts from a Set out a percentage (%) of the question you can still claim against
members pension interest. Deductions members pension interest or a your ex-spouse, either by going back
are only allowed in terms of the specific amount; to court to sue your ex-spouse for
Pension Funds Act, the Income Tax Act the value of the pension interest you
and the Maintenance Act, subject to Name/identify the relevant fund are entitled to, or by approaching the
the exceptions set out in section 37D. which has to deduct the pension court that issued the divorce order and
interest; and request an amendment in order to
Section 37D(1)(d)(i) states that a bring it in line with the provisions of
registered fund may deduct any The fund must be ordered to endorse the Divorce Act and the Pension Funds
amount assigned to a non-member its records and make payment of the Act. Both options involve further legal
spouse in terms of a divorce order pension interest. costs. Even if your ex-spouse confirms
granted in terms of section 7(8)(a) of that he/she has no problem with the
the Divorce Act. In the case of Areias vs Momentum
Retirement Annuity Fund and deduction of the pension interest
When parties divorce the court another [2013] JOL 30007 (PFA) the awarded to you, it wont affect the
may make an order (i) directing complainant held a divorce order which unenforceability of the order against
the applicable fund to make an entitled her to 50% of her former the fund.

74 COVER FEBRUARY 2014

February 2014.indd 74 2014/02/05 11:30 AM


Inseta

INSETA hosts joint


rated it as excellent.

During the session, some of the

workshops for burial


financial management weaknesses in
Burial Societies were discussed. The
course focused on balance sheets,

society members
income statements and cash flow
statements. The group also conferred
about how the culture of Burial
Societies influences their financial
management and governance practices.
Emphasis was placed on how to
create a sound financial management
INSETA has prioritised the framework. One of the candidates
transfer of critical skills to Burial commented, I am very pleased to
Society members. INSETAs have been a part of this training. I
have learnt a lot and now I will be
purpose is to develop scarce able to help our members by teaching
skills in the insurance sector, them about this course. I thank our
and by so doing, to support the facilitator, Mr Siya Ntutela.
countrys transformation. On the second day of training,
Creative Minds trained the candidates
Burial Societies as mutuals are unique in basic computer literacy. The
institutions. Members come from workshop covered the fundamentals of
different backgrounds and are often computers and how to use Windows.
required to perform highly skilled The candidates thoroughly enjoyed
functions like risk management, the course and expressed a desire to
governance, investment management receive further training to take them
and bookkeeping. The training that was beyond the introductory level one
provided at the October and November course.
2013 workshops addressed the skills

SANDRA DUNN
Chief Executive Officer of the
Insurance Sector Education and
MOST OF THE CANDIDATES
Training Authority (INSETA),
recognises the potential of the
Burial Society sector to create
EXCELLED AT THEIR TRAINING.
wealth for poorer households.

deficiencies identified by Burial Societies. Most of the candidates excelled at


INSETA will partner with them to ensure their training. Creative Minds expressed
that the monies entrusted by consumers their gratitude to the INSETA: We
to burial societies are well managed. would like to thank the INSETA for the
opportunity of providing the training.
The courses The joint training sessions were We appreciate the positive spirit in
organised by INSETA, Imsimbi Training,
covered and Creative Minds. The courses
which this course was organised.

were: basic covered were: basic financial skills, Zulu Ratswana, the general secretary
governance, secretarial skills and basic of the Burial Society of South Africa
financial skills, computer literacy. (BUSOSA), addressed the group of
governance, The basic financial skills course for
Burial Society members after their
session. He said that different Burial
secretarial Burial Society co-operatives was held Societies should come together and use
at Imsimbi Training in October and
skills and basic November 2013. Imsimbi Training offers
their unity as a bargaining tool. He also
discussed some of the programmes
computer personal effectiveness and leadership that are being implemented by
development training courses throughout BUSOSA, such as consumer education
literacy. South Africa. The trainees enjoyed the for Burial Societies.
learning process and said that they felt
comfortable enough to participate and INSETA plans to host more training
interact in the course. The majority of workshops for Burial Society members
candidates who attended the workshop in the Eastern Cape and Western Cape.

COVER FEBRUARY 2014 75

February 2014.indd 75 2014/02/05 11:31 AM


Pension Funds Adjudicator

Manager belonged
registered member, even though he
was a manager, and a death benefit
was duly paid by the first respondent.

to incorrect fund The OPFA conducted an investigation


to establish whether the second
respondent participated in another
fund; the second respondent
submitted: Fidelity uses one fund.
However, there are employees on
a pension fund and the majority on
provident fund. Mr M was on provident
fund.

Pension Funds Adjudicator, Muvhango


Lukhaimane, said, in terms of the
membership criterion of the first
respondent, with the provisions of
the sectoral determination of such
membership, the complainant was
correct in her submission as the
deceased was a manager specifically
excluded from participation by the
rules.

However, he did participate and a


benefit was duly paid based on the
deceaseds status as a member, she
said, adding it made no difference to
which fund the deceased belonged
because the contribution rate was
congruent to his earnings at 7,5% of
the earnings.

It also emerged that the second


respondent participated in the Fidelity
Security Provident Fund and ABSA
Fund.

Ms Lukhaimane found that the


complainants submission that the
deceased should have participated in
another fund with superior benefits
than the first respondent, was not
supported by the rules of both the
ABSA Fund and the Fidelity Fund, in
that, participation in both funds was
optional and not compulsory.

The deceased was not compelled to


A widow has failed to get In December 2012, the first respondent
join any fund in which the employer
distributed the death benefit of R81
a higher death benefit after 146,04 to the complainant and her two participates; he could have decided not
claiming her husband had been children as the identified dependants of to join any fund. Why the deceased
the deceased. registered with the first respondent
registered with an incorrect fund.
instead of these two other funds is
She complained to the Office of the speculation. In the event, this Tribunal
Mrs M of Johannesburg complained to
Pension Funds Adjudicator (OPFA) finds that the complainant has failed to
the Pension Funds Adjudicator that, that the deceased ought not to prove that she is entitled to the relief
though her husband was a manager at have been registered with the first that she seeks, she said in dismissing
a security company, he was registered respondent, but with a fund in which the complaint.
with a fund for security guards. managers participated. She submitted
that the death benefits from the first
The deceased had been employed respondent were lower.
by Fidelity Security Services (Pty)
Ltd (second respondent) and was a The second respondent submitted
member of the Private Security Sector that the deceased was contributing to
Provident Fund (first respondent). the first respondent where he was a

76 COVER FEBRUARY 2014

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Financial Intermediaries Association of Southern Africa

The value of good advice


South Africas risk and financial advisors kept it clean in 2013

The Financial Intermediaries referred to financial institutions or


other ombudsman schemes, 3 096
Association of Southern Africa
(34,3%) were dismissed and 1 354
(FIA) would like to congratulate (15%) were settled. There were only
the countrys risk and financial 33 determinations against financial
advisors on a job well done. services providers last year.

Advisors play an important role in


As 2014 begins to shade the horizon
assisting consumers in choosing and
we celebrate an industry that is built
interacting with their private medical
on professional advisors who provide
schemes too. It is the medical scheme
advice per the exacting standards
advisor or healthcare broker who
required by one of the best-regulated
has to guide South Africas consuming
financial services environments
public on the best scheme and benefit
anywhere in the world.
option combination for their needs.
The 2004 implementation of the And theyre doing a great job.
Financial Advisory and Intermediary
The latest Council for Medical
Services Act (FAIS) along with its
Schemes (CMA) annual report reveals
accompanying regulations contributed
that there are 3,8 million main
to a steep change in financial advice-
medical scheme members (and 4,8
giving. The Act, which sets out clear
million dependents) belonging to 92
guidelines on how risk and financial
private medical schemes. It also shows
advisors should interact with their
that only one out of 4 651 complaints JUSTUS VAN PLETZEN
clients, has already delivered positive
received by the Council in the 2012/13 CEO of the Financial Services
outcomes for consumers, as seen
year related to incorrect advice by Association of Southern Africa (FIA)
by the on-going improvement in
broker.
the standard of advice-giving by our
members. These pro-consumer statistics repeat
at the ombudsman schemes that
Both the regulators annual report and
hear complaints against South Africas with appropriate service when they
feedback from the industrys consumer
short-term and life insurers. There purchase investments, life assurance
protection schemes confirm that we
were only 9 123 consumer complaints or short term insurance. It aims to
are stamping out poor advice and
to the Ombudsman for Short-Term entrench a culture of fair treatment
reducing the number of questionable
Insurance (OSTI) over the latest of consumers at every company
financial products offered through the
year, despite millions of private and involved in the design, provision
intermediated distribution channel.
commercial policyholders. The OSTI and distribution of an insurance or
The impact of pro-consumer was set up to hear complaints against investment product.
legislation on the financial services insurance companies.
TCF requires that both the product
consumer can be assessed by studying
The Association for Savings and provider (the bank, insurer or
the complaints statistics published by
Investments (ASISA) notes that 86% investment house you transact with)
South Africas consumer protection
of South Africas 5,1 million new and advisor (financial planner or
schemes.
recurring premium policies invested in insurance broker) deliver a product
From a financial intermediary by the public in the six months until and service that meets reasonable
perspective the best place to start 30 June 2013 were introduced either expectations.
is the 2012/3 FAIS Ombud Annual by independent financial advisors or
Report. The FAIS Ombud was so-called tied agents. Only 9 592
established in terms of the FAIS Act complaints were brought to the
to facilitate complaints by consumers Ombudsman for Long-Term Insurance.
against intermediaries and can award
compensation of up to R800 000. The Financial Services Board (FSB)
is introducing six treating customers
The FAIS Ombud received 9 949 new fairly (TCF) principles that will be
complaints in the period under review. enshrined in financial regulation by
Of the 9 033 complaints finalised 2016. TCF will ensure that consumers
during 2013, 4 550 (50,4%) were are sold an appropriate product

COVER FEBRUARY 2014 77

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Africa Rising

South African
Economy in review REPORT PRODUCED BY COFACE, THE INTERNATIONAL CREDIT INSURER

STRENGTHS ECONOMIC GROWTH setbacks. In Europe fiscal austerity will


South Africa leads the continent The nominal GDP at market prices impede activity. In the US, much will
in industrial output and mineral during the second quarter of 2013 was depend on the ability of politicians to
production, and generates a large R836 billion, which was R23 billion navigate a path to fiscal sustainability.
portion of the continents electricity. more than in the first quarter of 2013.
Real gross domestic product at market China will move towards a stronger
South Africa has the largest economy prices increased by three percent consumer orientation, with implications
in Africa, accounting for 24% of the quarter-on-quarter, seasonally adjusted on commodity prices. Global
continents GDP in terms of PPP, and and annualised. economic conditions were difficult,
is ranked as an upper-middle income while infrastructure constraints,
economy by the World Bank. The largest contributions to the policy uncertainty, labour and social
quarter-on-quarter growth were unrest contributed to limited local
The country has abundant natural the manufacturing industry at 1,7 private sector investment and job
resources, well developed financial, percentage points based on growth creation. Broad-based growth was
legal and transport sectors, a stock of 11,5%; finance, real estate and slow. Economic growth is likely to
exchange ranked among the top 20 in business services contributed 0,8 of a be below 3%. The main impetus
the world, and a modern infrastructure percentage point based on growth of will be investment in public sector
supporting efficient distribution of 3,5%; and wholesale, retail and motor infrastructure. Exports will remain
goods throughout southern African. trades, catering and accommodation under pressure.
industry contributed 0,4 of a
WEAKNESSES ECONOMY BY SECTOR
percentage point based on growth of
South Africa suffers from heavy Statistics South Africa surveys
3,2%.
regulation, increasing costs for 10 industries: seven recorded
corporates with rising wages, poverty, 2014 will probably be similar to 2012. improvement in growth compared
inequalities, and social risk mixed with Many economies remain in unchartered to the first quarter. Manufacturing
high unemployment and a shortage of territory and obstacles like high debt contributed most to second quarter
qualified labour. levels and weak confidence could cause growth, with 1,7 percentage points.

78 COVER FEBRUARY 2014

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The GDP figures and the July inflation plans, but its contribution to the total
number at 6,3% weaken the case value and the number of projects has
of those calling for another rate cut. fallen.
Annual growth is still low at 2,0%,
placing the Reserve Bank in the Projects by the private sector
unenviable position of deciding on rates accounted for 60% of the total
in an environment of weak growth value of projects announced. The
and rising inflation stemming from a sector announced 59 new projects
weak currency. The Reserve Bank will worth R53,2 billion in 2012. General
probably opt for an accommodative governments contribution in value
policy and interest rates are likely to be and number of projects has improved
on hold well into 2014. considerably over the past three years.
They announced 24 new projects
The agricultural sectors value slowed worth R22,8 billion in 2012, compared
to 3,7% from 4,9% in the first quarter. to R17,4-billion in 2011. Public
The strike-plagued mining sector corporations announced only two new
recorded a decline in value in the projects worth R12 billion, the biggest
second quarter of 5,6%, after the value in three years.
14,6% first quarter recorded growth.
Manufacturings value accelerated to 2013 remains cloudy. Consumer
11,5% from a decline of 7,9% in the spending is likely to lose momentum.
first quarter. Fixed investment by the public
sector could increase as government
This growth was enabled by higher accelerates its infrastructure spending
production in the basic iron and steel, programme.
non-ferrous metal products, metal
products and machinery division; motor Government will have spent R1
vehicles, parts, accessories and other trillion on infrastructures in five years
transport equipment division; glass to the completion of the current
and non-metallic products sector, and administrations term of office in 2014.
textiles, clothing and leather products That is more than twice the amount
sector. spent in the previous five years and
substantially more than was spent in
The finance and real estate industry the last five years of apartheid.
made up 21,5% of GDP in 2012 and
accounted for 0,8 percentage points of FOREIGN TRADE
the quarterly growth, due to increased The trade deficit widened to R14,2
activity in the banking sector and billion in July against the market
Growth in the mining sector,
financial services. The wholesale, consensus of R8,9 billion and from
accounting for 9,3% of GDP in 2012,
retail, motor trade and catering and R7,7 billion in June. Exports increased
shrunk 4% in 2012 and improvement in
accommodation industries contributed by 10,9% m-o-m, while imports surged
2013 is unlikely.
0,4 percentage points to quarterly by 18,9%.
growth. Growth in the wholesale, retail
The cumulative seven month deficit
and motor trade and catering and
The improved second quarter growth until July 2013 amounted to R89,4
accommodation sector accelerated to
was expected, but is unlikely to billion compared to R59 billion over the
3,2% from 1,9%. Transport, storage
continue into the third quarter. Cofaces and communication sector value grew
forecast for the 2013 full year growth 1,6% from 2,2%, while growth in
is 2,0% down from 2,5% recorded in the finance, real estate and business
2012. services sector improved to 3,5% from
3,3%.

General government services slowed to


0,3% from 1,9% while value added by
the personal services sector grew by
1,9% from 1,4%. Risks to the inflation
outlook remain high due to the weaker
rand. Household expenditure remained
subdued in the first quarter of the year.

INFRASTRUCTURE
88 capital expenditure projects were
announced in 2012, the largest number
of projects since 2008, up from 65
projects in 2011. The private sector
remained the main driver of investment

COVER FEBRUARY 2014 79

February 2014.indd 79 2014/02/05 8:17 AM


Africa Rising

gross loan debt. The primary source


of funding for the budget deficit
remains domestic borrowing through a
combination of Treasury bills, fixed-
income and inflation-linked bonds.

SAs outstanding foreign debt increased


from $50,9 billion at the end of
2011 to $53,3 billion at the end of
fiscal year 2011-12. This increase
was due to more borrowing from
international capital markets by the
national government, the domestic
banking sector, and foreign borrowing
by parastatals to fund infrastructure
investments.

BUSINESS CLIMATE
In the most recent Doing Business
report, SA is ranked 39 out of 185
countries in terms of ease of doing
business, up four positions from last
year. SAs ranking in some areas
remained unchanged. SA is still ranked
as number one for ease of getting
credit.

LABOUR FORCE
The unemployment rate rose to 25,6%
in the second quarter from 25,2% in
the first as the labour force expanded
by more than the number of employed
people. The labour force rose by 220
000 or 1,2% over the quarter, while
same period in 2012. Precious or semi- standard. South African banks are the number of employed people rose
precious stones boosted export which operating with an average capital by 0,7% or 100 000. Formal and
rose by 21,7% m-o-m, base metals adequacy ratio of 15% (12% for Tier 1 informal sectors created jobs, with the
(up 15,6%), and electrical equipment capital), above the minimum capital number of people employed rising by
(up 17,8%). Shipments of vehicles and adequacy requirement of 10%. 109 000 and 30 000 respectively.
equipment increased by 8,4%. On a Agricultural and private household
y-o-y basis, precious or semi-precious In June 2012 the SARB proposed a sectors shed jobs over the quarter. The
stones exports increased by 24,7%, minimum Tier 1 capital adequacy ratio number of discouraged work seekers
base metals by 37,8%, electrical of 6,5% and a total capital adequacy increased by 35 000 after rising by 73
equipment by 21,7%, while vehicles of 10% by January 2015. The financial 000 in the first quarter.
and equipment gained 23,8%. sector performed well in 2012.
The unemployment rate is likely to
On a monthly basis electrical Annual growth in broad money supply remain high in the short term as firms
equipment boosted total imports, (M3) slowed to 7,4% in July from 9,2% remain cautious of expanding capacity
which rose by 19,0% m-o-m, and in June. The market expected it to and employing more people in the
vehicles and equipment (up 32,4%). ease to 8,7%. During the month, M3 challenging economic and labour
On a y-o-y basis, electrical equipment grew by 1,2% or R29,6 billion, driven environment. Employment is likely to
imports rose by 31,5%, while vehicles by sharp rebounds in net foreign assets be driven by the public sector as it rolls
and equipment increased by 30,8%. and net claims on the government out its infrastructure programme.
sector, which rose by R11,1 billion and
FINANCIAL SYSTEMS R39,1 billion respectively following The increase in the unemployment
SAs financial system is stable thanks sharp falls in June. Claims on the rate adds to the evidence that the
to efficient regulatory infrastructure, private sector and net other assets and local economy is struggling to pick up
financial markets and financial liabilities declined in July, following momentum. Although recent indicators
institutions. SA ranked third out of strong rises in June. have shown that demand-driven
144 countries in financial market inflation remains contained, risks to the
development and first in legal rights DEBT inflation outlook are still on the upside.
in the financial sector and securities National governments domestic debt This, along with the poor economic
exchanges regulation (Global increased from R884 billion during growth outlook, is likely to persuade
Competitiveness Report 2012-2013). fiscal year 2010-11, to R1,06 trillion the Reserve Bank to maintain its
Domestic banks are capitalised above during fiscal year 2011-12. Domestic accommodative monetary policy stance
Basel III levels, a new global regulatory debt accounts for 90% of total well into 2014.

80 COVER FEBRUARY 2014

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Sanlam takes Africa
by storm in 2014
The leadership of Sanlam in turn put a damper on economic
growth in that region, while an
Emerging Markets (SEM)
economy such as Malaysia, which is
the division of the JSE-listed closer than most in Sanlams portfolio
Sanlam group with a presence to first world status, should be less
in 12 emerging market countries affected. Among African countries
(excluding South Africa) SEM expects
on three continents holds a Namibia to be impacted by exchange
positive view for 2014, believing rate fluctuations due to its close ties to
that emerging market nations the South African rand.
in which SEM has a presence In terms of expansion prospects for
still have the potential to grow SEM in the new year, there are many
at multiples of their developed opportunities in emerging markets,
market peers. SEM has identified including the addition of a life insurer
in Malaysia and increasing the SEM
Angola, Mozambique, Zimbabwe footprint by investing in Angola,
and other countries in East Africa Mozambique, Zimbabwe and other HEINIE WERTH
countries in East Africa. CEO of Sanlam Emerging Markets
as possible expansion prospects
(SEM), says there are more than enough
in the new year. In addition, SEM positives to counteract concerns over
will also explore opportunities to AFRICAS INSURANCE PENETRATION interest rates and inflation in 2014.

deepen its presence in existing IS APPROXIMATELY 1,6% COMPARED


markets. TO INDIA (3,4%) AND A GLOBAL
specific to the continent. A recent
AVERAGE OF AROUND 7%.
Sanlam projects that the biggest report by GSMA reveals there are
potential contributions will be from 253 million unique mobile phone
India during 2014 and Nigeria over subscribers in Sub-Saharan Africa. In
One of the major factors supporting their report titled Sub-Saharan Africa
time, and is comfortable with the
growth in Africa and Southeast Asia Mobile Economy 2013 the organisation
forecast contributions from the smaller
is that insurance penetration in both predicts this number to grow to 346
economies that make up their Africa
the short-term and life categories in million subscribers by 2017.
portfolio.
these regions is low. Africas insurance
SEM, which contributes roughly penetration is approximately 1,6% This is great news for diversified
20% to the Sanlam groups gross compared to India (3,4%) and a global financial services companies with
profit, has business interests in ten average of around 7%. South Africa, investments in Africa. Mobile phones
African countries, predominantly in meanwhile, boasts among the highest make it easier for insurance businesses
the Anglophone countries, Malaysia insurance penetrations anywhere in the to communicate with their clients,
and India and is well positioned to world, at 14%. while mobile banking solutions make
comment on growth prospects in these it possible to collect premiums. The
Financial services businesses in these success of mobile banking across the
emerging markets.
markets will therefore benefit from region is due to the lack of bricks and
The business environment will remain both the above-average economic mortar infrastructure in many African
volatile as global markets come growth potential and a catch-up in countries.
to terms with the tapering off of insurance penetration over time. Add
quantitative easing through 2014, but to this the desire of governments and Sanlams growth in Africa and other
the resultant exchange rate volatility international investors to develop the emerging markets will come from
will have a far greater impact on larger burgeoning middle class in Africa and achieving a balance between existing
economies than the relatively insulated India and you have a winning growth businesses and new opportunities.
African countries in the SEM portfolio. formula. The secret for success in the emerging
market arena is to be flexible and
A country like India will experience Mobile phone penetration and the patient and to approach each country
a great deal of upward pressure on return of international banking brands with due consideration for its unique
interest rates and inflation, which will to Africa are also growth drivers culture and consumer needs.

COVER FEBRUARY 2014 81

February 2014.indd 81 2014/02/05 8:17 AM


Africa Rising

Building a better South Africa


BY ANDRIES ROSSOUW,
PwC Partner
PwCs inaugural edition of SA
Construction highlights some of
the trends in the South African
construction industry. The
studys findings are based on the
financial results of the top 10
construction companies by market
capitalisation on the Johannesburg
Stock Exchange (JSE) for financial
year ends to June 2013.

South Africas construction industry


is poised to support the country and
continents infrastructure development The
needs despite the financial challenges governments
of the previous three years, penalties infrastructure
relating to allegations of anti- development
competitive conduct and challenges in plan and the
the industry, according to the report new Presidential
issued by PwC on 3 December 2013. Infrastructure The growth in the order
Coordinating Commission are book during 2013 was 1%, as
THE SOUTH AFRICAN positive signs for future growth in the opposed to 16% for 2012. The secured
CONSTRUCTION INDUSTRY industry. order book now only covers 1,2 times
The construction industry is cyclical current-year revenue compared to the
in nature. There is a stark difference After remaining fairly flat from 1,5 times of the previous year.
between the performance of the 2009 to 2011, capital expenditure
Construction Index and the JSE all- by public-sector institutions has FINANCIAL PERFORMANCE OF THE
share index. The industry has been increased by 11,7% since 2011, with CONSTRUCTION INDUSTRY
punished for its lacklustre financial total expenditure in 2012 amounting Total revenue increased by 21% to
performance in the down cycle, and to R202 billion. The scale of this R145,7 billion the previous year.
for the negative public perception increase may be misleading, as new Operating expenses increased by 19%,
following the Competition Commission construction work only increased by taking into account the substantial
process, findings and settlement in 3,5% to R137 billion, while plant, Competition Commission penalties.
2013. However, there are signs of machinery and equipment purchased Staff costs make up 27,9% of total
financial recovery on the horizon. increased by 55% to R38 billion. operating costs (2012: 29,4%). This
cost component increased by 13,5%,
Actual construction expenditure in which is well below the construction
2012 was R7,3 billion below the revenue increase of 23% and could
2011 forecast. For new construction indicate improved productivity or
expenditure, the difference was only margins improving to more sustainable
R1,5 billion, with the R6,5 billion levels.
and R8,5 billion underspent by
municipalities and extra-budgetary The report shows that the industry has
accounts respectively partially offset enjoyed higher salary increases than
by higher expenditure by public other sectors.
corporations (R11,3 billion) and
National Government (R2 billion). The effective tax rate was 33%,
The remainder of the difference is compared to 50% in 2012. Exclude
explained by delays in major renovation the impact of discontinued operations,
projects. The private sector, usually then this rate changes to 36% (prior
led by the mining industry, has been year: 48%). The higher effective rate is
a significant contributor to total a result of the non-deductibility of the
construction expenditure. Competition Commission penalties,

82 COVER FEBRUARY 2014

February 2014.indd 82 2014/02/05 11:39 AM


THE GROWTH IN THE ORDER
BOOK DURING 2013 WAS 1%, AS
OPPOSED TO 16% FOR 2012.

the inability to recognise deferred tax


assets for losses, and differential in tax
rates in foreign jurisdictions.

INTEGRATING RISK FOR


PERFORMANCE
Construction companies should
integrate risk and performance
management to anticipate and plan
for negative potential events. The
common risks identified by construction
companies include transformation,
health, safety and environmental
sustainability, followed by growth
and expansion, and compliance with
the laws and regulations. The risk
of reputational damage from non-
compliance relating to anti-competitive
conduct was highlighted during 2013. In
June 2013 the Competition Commission
fined the major construction firms
a collective R1,46 billion for anti-
competitive behaviour, and inclusive
tendering relating to projects concluded
between 2006 and 2011.

The low profit margin environment has


placed additional pressure on strategic
decisions relating to capacity, tender
activity and pricing. Movements in
foreign exchange have an effect on
the international businesses of South
African construction companies,
mainly in Africa and Australasia. The has expressed its intention to conduct The value received by employees,
governments delay in rolling out its extensive compliance checks and including employee tax, represented
infrastructure programme has caused integrated audits in the industry, paying 82% (2012: 82%) of the value created.
delays in the award of tenders and particular attention to individuals and This is a significant contribution to
available work. entities that are awarded government the labour market. According to Stats
tenders. In addition, filing declaration SA, more than 420 000 people are
SAFETY and payment behaviour will be employed directly by the construction
The construction industry, the scrutinised for corporate income tax, industry.
government and trade unions are value-added tax (VAT) and employee
placing more focus on occupational tax (PAYE). Attention will be paid to The state received 5% (2012) of value
safety, for example recent initiatives contractors and subcontractors. created in the form of direct taxes.
like the Construction Health and Safety The reality is that the state receives
Accord of 2012. Stakeholders are more IMPROVING VALUE TO significantly more if one takes into
aware of the need for discussion of STAKEHOLDERS account the tax on employee income
safety matters in companies annual The construction sector adds significant deducted from employees salaries and
integrated reports, rigorous safety value to South Africa and its people. net indirect taxes like VAT.
inspections by the Department of Stakeholders in the industry include
Labour and safety stoppages. employees, their families, unions Construction companies need to
representing them, the government focus more on integrating risk and
TAX CHALLENGES as regulators and custodians of the performance management into their
The South African Revenue Service tax income for the country, investors, strategies. Executive management
(SARS) has listed the construction suppliers and customers. The monetary will have to steer their companies
industry as one of its seven focus benefits received by each of these through the low margin challenges,
areas for the next four years. SARS stakeholders is often summarised while recognising the impact on all
research has shown compliance within by companies in their value added stakeholders involved.
the sector to be low. Therefore SARS statements.

COVER FEBRUARY 2014 83

February 2014.indd 83 2014/02/05 8:18 AM


Africa Rising

South African investors


trek into Africa
To take advantage of the service, retail
investors first become clients of Imara
S.P. Reid and complete the standard
FICA and Know Your Client processes.
Their investment capital is kept in the
JSE Trustees Fund in high-yield money
market instruments until the share or
bond transaction is complete.

Imara is an independent, Botswana-


listed investment banking group that
prides itself on objective decision-
making in the service of its clients. The
company is mid-sized and has offices
in Angola, Botswana, South Africa and
the UK and associate offices in Malawi,
Mauritius, Zambia and Zimbabwe.
Imara has partnered with Chapel Hill
Denham in Nigeria, Sterling Bank in
Kenya, Namibia Equity Brokers and Mac
Capital in Dubai.

The Group is an active participant in


South Africans are trekking into international fund managers and
Africas financial markets and maintains
local pension funds are also active
Africa this time to stake a extensive research coverage of regional
participants in these markets.
claim in fast-growing investment equities.
markets south of the Sahara. Retail investors were denied these
opportunities for many years. Now
Imaras investment service is they think if the big players are getting
designed to open up African involved, its time we got in on the
equity markets to local retail action as well.
investors. Strong recent gains on several African
stock exchanges also excite strong
The investment channel was originally interest.
developed by sister-company Imara
Africa Securities to take institutional Some African indices have shown gains
funds into Africas sub-Saharan frontier well above 20%. This focuses attention
markets. S.P. Reid has widened the on the potential for capital gains at a
offering to accommodate individual time when many international markets
saver-investors who until now have offer lacklustre performance at best.
had limited opportunity to buy shares
on African stock markets. New retail clients are not the first to
trek into African markets. Even ahead
The new service from Imara S.P. Reid of the launch of the service, some
opens up equity and bond investment individual saver-investors were eager to
opportunities across 17 African stock commit funds.
exchanges.
Imara has handled an inflow of R150
Imara gains an average of five new million from retail clients on the run-in
investors a day, who see Africa as a to the launch as word spread about
growth opportunity and a diversification this opportunity. Over time, African
play. Many have decided to follow the securities are expected to have an Imara S.P. Reid Stockbrokers reports bigger
money. South African banks, retailers accepted place in a well-diversified than projected response to the launch of
and telecoms are moving into Africa portfolio, especially among those who its Africa-wide investment service
in search of better growth prospects have confidence in the long-term BY SIMON REID
than those available at home. Big growth of African economies. Head of Imara Africa Securities

84 COVER FEBRUARY 2014

February 2014.indd 84 2014/02/05 8:18 AM


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Economy

QE performance SANLAM INVESTMENTS

since 2008
that have not been lent out, the
build-up in reserves was an inevitable
consequence of Fed policy action
facilitating credit extension, namely
its loans and asset purchases. In any
event, total loans and leases of US
commercial banks have recovered from
their pre-crisis levels.

DID THE FED SUCCEED?


Yes, but only if you believe the
intention was to restore stability
to dislocated capital markets and
to prevent a sustained fall in credit
extension. QE, in itself, cannot be
expected to lift growth to a sustained
robust level.

WHAT NOW?
Looking ahead, the Feds balance sheet
activity should be viewed separately
from its interest rate policy. Although
complementary, these two instruments
have two distinctly separate objectives.
The former seeks to promote financial
stability. The latter is focused on
achieving macroeconomic stability. QE
tapering does not automatically mean
earlier or more aggressive interest rate
hikes than currently indicated by the
The US Federal Reserve (Fed) DID IT WORK? Fed.
It is difficult to quantify the impact QE
responded aggressively to has had on the economy and asset A FINAL THOUGHT
systemic risk in the financial prices. What we can observe, though, It is ironic that in an era where the
system during the credit crunch is that the Feds first announcement usefulness of forecasts is increasingly
on 25 November 2008 of its intention being questioned, the Feds policy rate
by supplying liquidity, providing to directly purchase the obligations of is now, through its forward guidance,
loans to banks and non-bank housing-related government-sponsored more strongly than ever tied to its
firms and buying assets. But has enterprises (GSEs), as well as the medium-term economic forecast.
mortgage-backed securities backed by
it achieved what it set out to do? those GSEs, was immediately followed First published in Sanlam Intelligence.
by a material decline in the national
WHAT WAS THE GOAL? average yield on 30-year mortgages.
In addition to lowering interest rates
close to the zero-bound, the Feds This downward trend in the yield was
balance sheet became an important maintained through to late 2012.
instrument of monetary policy in The Feds QE programmes were also
supporting dysfunctional interbank accompanied by decreasing spreads on
markets and in trying to address high-yielding corporate debt relative
deficient demand in the economy. to benchmark rates. Furthermore, the
Feds policy action helped to avoid a
The idea was to boost money growth, sustained sharp fall in credit extension
support asset prices and reduce yields to the private sector.
(and lower borrowing costs). The
recovery in wealth, in tandem with While it is argued that the Feds policy
lower yields, was expected to support didnt work because it resulted in a
domestic demand. large build-up in banks excess reserves

86 COVER FEBRUARY 2014

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Events

Cycling for a cause


from Karoo to Coast

Last year September, team Camargue cycled the


Lions Karoo to Coast mountain bike challenge a
100km race from Uniondale to Knysna via the
Prince Alfred Pass.

Camargue used its combined pedal power to cycle for a


cause and successfully raised R45 000 for Brainstorm,
a professional support group for brain injury and stroke Former SAPA sports journalist and Brainstorm member
survivors. Each kilometer was sponsored by Camargue Larry Lombard was working on a story on child prostitution
supporters and the public who were invited to get behind and drug trafficking in the run-up to the SA Soccer World
the campaign that was inspired by former journalist Larry Cup when he started receiving life threatening warnings.
Lombards story. Lombard kept chasing the story and following up leads.

Ten gang members beat his body and his head and left him
for dead. Camargues CEO Mitch Marescia found Lombard
and held his limp ice-cold body until the ambulance arrived.
He awoke in hospital weeks later.

This donation is in honour of both Larry and Brainstorm,


said Marescia.

Camargues journey to create a better South Africa is on-


going. Designed to create ripples of change, its corporate
responsibility initiatives evolve over time, driven by
circumstance and consideration.

Unlike the way so many businesses have cheapened what


CSI stands for, by merely score carding their investment,
Camargue is owning its part in building society; we like to
think we are progressively becoming a firm of endearment,
said Marescia.

Lombard is also well known for his role as co-founder of the


Ironman South Africa sporting event.

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IRMSA Conference

BY KABELO LETEBELE

Reflect, react, restart


The Institute of Risk Management South Africa
(IRMSA) held its annual conference in November
2013. A highlight in IRMSAs calendar, the theme
for this year was to reflect, react and restart.
Peter Ndoro was Master of Ceremonies and
powerful speakers and opinion leaders shared their
insights, views and opinions on risk related topics.
The event included engaging panel discussions and
local and international speakers.

Held over two days, the major themes were: protection of


personal information, labour risks, regulatory risks, crime
and security risks, business and political risks, risks to boards
and executives, and risk management in practice. High
profile speakers at the event were 702s Bruce Whitfield,
Clem Sunter, Justice Malala and IRMSAs 2013 Risk Manager
of the year, Gordon Howes.
Morland thanked the executive committee and members for
This year marked IRMSAs 10-year anniversary. New IRMSA
their support and focus over the past 10 years. The speakers
President, Sheralee Morland, reflected on the achievements
explored the evaluation of circumstances today, whats likely
of the organisation over the past decade. Going forward,
to unfold in the immediate future and how this will affect
Morland assured members that risk management growth and
the work of risk management professionals.
professionalisation will remain critical focus areas of IRMSA.
The conference programme was designed for all IRMSA
members, noting different backgrounds, experiences and
approaches in risk management. It was also an opportunity
to network, connect and stay in touch with other members
of IRMSA.

WHATS KEEPING YOU AWAKE?


Award winning financial journalist, Bruce Whitfield from Talk
Radio 702, was up first with his presentation: What keeps
me awake at night? Whitfields main concern was whether
or not todays leaders in business and government will make
the right decisions for future generations.

Whitfield said economic inequality, which is at the root of


socio-economic challenges, is causing the radicalisation
of workforce and major indebtedness, especially at the

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Kruger asked attendees to reflect on their companies reward
philosophy. In your organisation is staff expenses seen as a
cost or an investment? He explained that if it is seen as a
cost, it is likely that management focus will minimise cost.
On the other hand if it is an investment, the focus will be
on how it can be optimised in a synergised manner.

He believes that a proper reward process philosophy has


three main benefits:

Attraction attracting the right staff, at the right price and


employed at the right time.

Retention saving on retention costs (as up to 100% cost


of the annual package can be spent on recruiting a new
candidate).

Engagement proper reward can help to keep staff


engaged, staff that are interested and committed to making
impact in the company.

A last critical element of the reward structure is to recognise


the need of each staff members and their life-stage, for
example providing options for more affordable medical aid
cover for a younger person to enable them to take slightly
more money and possibly doing the opposite for the more
senior members with families.

He cautioned companies about the design of the reward


process, They must be modelled and designed properly so
that they do not become demotivating.

POLITICAL ASSESSMENT
Political analyst, journalist and television presenter Justice
entry level. He shared insights from international research
Malala assessed the political environment. He highlighted
consultants McKenzies that the next couple of years would
the need to acknowledge and continue to build on the good
be defined by VUCA volatility, uncertainty, complexity
work being done by public sector structures like the offices
and ambiguity. Whitfield suggested that business, labour
of the Auditor General and the Public Protector. Malala said
and government need to talk more with one another (and
these offices are important in showing challenges in our
argue less). He ended his presentation with an answer to his
country around irregular expenditure.
question: What keeps me awake at night is, what does this
place look like in the next 20 years? Malala told attendees to expect more alarmist talk and
political noise as we build up to next years elections. Issues
REWARD MANAGEMENT PRACTICES
like Nkandla gate and e-tolls remain major political tools
Peet Kruger spoke about reward management practices.
to obtain votes in 2014. According to Malala, major concern
Kruger asked: What is the value of money? He said in terms
should be South Africas poor economic growth, which is
of reward practices, there are two answers to this question:
affecting governments ability to deal with issues around
the money that goes into your account or bonus and the
unemployment.
perceived value of money.

He asserted that, It is not what we pay people, it is how


we pay them and the communication that goes with that
process. If an employee is told by the line manager that
there will be no bonuses due to tough economic and trade
environment, but later finds out that the CEO, who is
leaving the company, has received a golden handshake
the question in the employees mind will be: Is this fair?

He emphasised that pay is an emotive issue and the


challenge for businesses is two-fold: how to manage reward
and how to manage communication around it.

Kruger said reward is more than finance. It is also about


people development, proper management and leadership
of staff. It is also value proposition you offer as company to
your employees, he said. Reward is certainly a strategic risk
which will influence behaviour, especially in relation to the
long term vision and culture of the organisation, he said.

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IRMSA Conference

The slow economic growth is due to some areas of the


economy not being at optimal performance, for example the
mining, manufacturing and utilities (water and electricity)
Lack of economic growth is a risk in an environment where sectors.
50% of youth are unemployed, said Malala. He argued that
civil unrest is likely to increase, along with radicalisation of The instability seen in 2012, our loss of competitiveness
our society manifesting in labour instability, more wildcat in manufacturing, as well as delays with our new power
strikes and jostling for power by unions. He believes stations are causing major problems for our economy,
introducing the youth subsidy is one solutions to the issue. said Weimer. She believes that when new power stations
He said current challenges in Cosatu is the opportunity for are completed they will provide a good stimulus for the
government to introduce this legislation, as the trade union economy.
appears to have less power in the alliance.
Weimar observed the following structural economic
Malala said it is important that the quality of our education factors:
system improves. He added that businesses need to focus
more on transformation and provision of jobs to prevent Fading international competitiveness
the radicalisation of society (figures like Malema) from
High electricity costs
increasing. He emphasised the need for businesses to
challenge corruption in the private sector and concluded that Rising unit labour costs above inflation wage growth
the relationship between business, labour and government versus fading productivity.
needs to improve urgently.
Hostile relationship between business and labour
ECONOMIC ASSESSMENT (employers and employees) strikes
Nedbank economist, Nicky Weimar, speculated on prospects
for 2014 and beyond. Poor service delivery, which raises the cost and risk of
doing business red tape and corruption at local authority
Weimar said the South African economy is stagnant and that level and among provincial government(s)
structural constraints are the main impediments to the Gross
Domestic Product (GDP) growth of over 3%. She observed Expensive and often unreliable transport and logistics and
that although South Africa is out of recession, a big concern the private sectors ability to expand operations
is a loss of growth momentum in the economy.
Persistent policy uncertainty although greater clarity is
During the first and third quarter of 2013, the SA economy emerging through the National Budget and NDP
grew by less than 1% and Weimar predicted that growth will
be in the (unimpressive) region of about 2% for 2013. This These problems are specific to South Africa and they are
level of economic growth makes little difference in dealing issues that only we can resolve, argued Weimar. She said
with unemployment, poverty and addressing inequalities in South Africa is the worst performing developing country in
our society. terms of economic growth and she believes this is mainly
due to these structural factors. She believes that the private
sector will continue to remain hesitant to expand its capacity
if these issues are not addressed.

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Soobedaar observed that the employers were quick to use
conventional ways of dealing with a dispute, for example the
propensity to focus on getting the interdict, calling police and
other processes in a dispute. He suggested that these methods
foster distrust and proposed that while it is necessary to follow
these, it is also important to engage, even with the sporadically
formed groups, and try to resolve issues of concern.

Industrial Relations must be managed as a strategic risk


in the organisation

Soobedaar advised corporates to manage industrial relations


as a strategic risk due to the frequency of events and the
changing nature of the labour matters. He encouraged
The poor world economic environment is cyclical and affects employers to change their approach on how they relate to
many countries around the world, including South Africa. their staff and urged them to focus on the human condition
In terms of the global economic situation, one of the key in their approach to interactions.
problems for South Africa is that it is heavily exposed to the
Socio-economic issues cannot be left unattended
Eurozone.
Soobedaar said that many of the strikes occur as a result
The good news for our economy, according to Weimar, is
of failure of service delivery and that better service delivery
the public sector infrastructure drive planned for the next
will help normalise the status quo. He advised employers
couple of years, and that South Africa continues to get
to ensure that, in their negotiations, they are dealing with
the required capital inflows it needs (also subject to credit
individuals employed by them.
rating). The economy will only improve when government
and all stakeholders play their part in helping it recover. We need a paradigm shift in collective bargaining
LABOUR RISKS Soobedaar suggested that, in light of the recent labour
The Marikana tragedy and the violent illegal farm strikes developments, the current framework may no longer be
in De Doorns have made labour risk a major challenges in sufficient in management of labour issues. He believes that
South Africa today. Following these two events, there are with awareness and constant effort to communicate and
now more sporadic strikes, usually unprotected. appeal to the humanity element of everyone the situation
can be managed better.
Afzul Soobedaar from the Commission for Conciliation
Mediation and Arbitration (CCMA) tackled this issue. THE NEED FOR THE NATIONAL DEVELOPMENT PLAN
(NDP)
Marikana and De Doorn have changed the nature of our
Dr Ismail Lagardien argued that the primary problem when
country and the trajectory of how we relate to each other
their team conducts presentations on NDP, is that individuals
on labour issues, said Soobedaar. He said that these events
opposing the bill usually respond to what they think is in the
have forced stakeholders to take note of labour relations
plan as opposed to the actual content.
and to review how things are currently working. In the
knowledge economy, we have forgotten that at the bottom Another argument against the bill is that it is an ANC
of this process is the human condition, he said. document, DA document and SACP document. He
indicated that the work began in the mid-2000s during the
Soobedaar believes that there are major lessons to be taken
Mbeki era. It was discussed at the Polokwane conference
away from these events:
and then formally adopted at Mangaung. The starting point
Societal frustration manifested as labour dispute was to determine what is wrong with South Africa (with
evidence) and to find proactive solutions to these challenges
At the core of the De Doorn strikes are issues that have very to ensure future success.
little to do with labour, but more so with failed service delivery.
It was clear that workers are rejecting the recognised processes Lagardien said the plan is built on six pillars:
of labour dispute, and in a number of cases they expected
- To mobilise South Africans around a common purpose;
employers to take more responsibility on social service issues.
- an active citizenry;
A new form of association emerged worker
committees - to grow an inclusive economy;
The recent labour activities have seen an increase of - the need to improve capabilities;
informal worker committees. This suggests a vote of no
confidence in the current process, that there is lack of - the need for a capable and developmental state; and
understanding of the needs of the workers and lack of
confidence in labour unions. The risk here is for employers - responsibilities of leaders throughout society to work
to abdicate their responsibility of talking to their employees. together to solve our problems.

Relying on the law and conventional rules of The plan is implemented in intervals of five years and should
engagement has limitations be fully implemented in 2030.

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Events

Golfing for charity

PSG Konsult hosted their third


annual golf day in KwaZulu-
Natal on 5 November 2013, and
the yearly festivities for charity
have gone from strength to
strength.

Previous Springbok and Sharks rugby


player, Wayne Fyvie, was the guest
speaker, and 120 golfers brought their
best game.

The fun created by the organisers and


advertisers contributed to the awesome
R67 700 that was donated to the
Feed a Child charity. This amount will
provide for 27 000 meals.

Well done to everyone who supported


this event!

92 COVER FEBRUARY 2014

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On the left is Alza Rautenbach from Feed
a Child on the right is Estelle Pieterse
CFP Regional Manager of PSG: KZN

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INSURANCE IN YOUR POCKET, FOR YOUR POCKET Historically, portable gadgets were only included on
DEVICE insurance policies if you owned your own home. We know
SureThing, a new online gadget insurance solution founded how precious and expensive portable electronic devices
by Richard Neville, was recently launched in South Africa. are and we want to empower young people to take
SureThing provides immediate, inexpensive insurance for responsibility for these items, says Neville.
cell phones, laptops, game consoles, tablets, laptops and
e-readers.

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February 2014.indd 94 2014/02/05 8:20 AM


For the Eden MDMC finding ways and means to mitigate
levels of exposure to risk has been extremely important and
has proven that prevention and mitigation actions can be
coordinated.

South Africa presents a challenging environment, where


business continuity needs to be ensured in the aftermath of a
disaster. Risk management initiatives involving government,
business and municipalities are essential to preserving lives,
property and economic vitality.

PFP INSURANCE BROKERS CELEBRATES FIRST


ANNIVERSARY OF LOCAL TRADING
Patrick Pillai, PFPs Executive for Operations and Commercial
Business Head, says that management has spent the majority
of the first year building a team of service professionals and
service capabilities in order to create a competitive offering in
the South African market.

While the corporate insurance market remains the primary


SANTAM CRANKS UP THE EDEN STUDY focus for PFP and its UK shareholder, Price Forbes and
In recent months, Santam handed over the completed Partners, locally there has been a drive to capitalise on
installation of an Early Warning Disaster (EWD) System to the opportunities in the commercial space. With 20 years of
municipality in George in the Southern Cape. A 2011 study experience in diverse commercial portfolios including large
conducted by CSIR, UCT and WWF found that insurers have property groups, motor fleets, group schemes, travel insurance
experienced an increase in losses due to volatile weather and retail and wholesale industries, Pillai was brought on
conditions meaning that communities need help to become board to drive growth in the commercial market in South
climate-resilient. Africa.
The hand-over marks part of the next phase of the Eden Pillai has been involved in building product and system
Study, a research study on how climate change impacts capabilities to handle the corporate and commercial business.
on local communities. The system will assist with the Pillai explains that PFPs strategy for commercial business is
transmission of warnings of severe weather conditions and built around applying a corporate mind-set to commercial
disaster notifications. clients, and involves getting to know and understand each
clients own business while focussing on delivering a personal
The polycom, linked to the Eden Disaster Management Centre service to them.
in George, has been installed also been installed in George,
and will give the local community and businesses access These developments are in line with Michael Donegans, Chief
to emergency messages or alerts in English, Afrikaans and Executive of the Price Forbes Group, initial comments a year
Xhosa. ago, Establishing an office in South Africa offers businesses
a new alternative choice delivered by an independent group
Ray-ann Sedres, Head of Integrated Sustainability at Santam focused on offering clients a bespoke and unrivalled service.
said that 2012 was one of the worst years for weather-related
catastrophes in South Africa. With damaging floods in Cape Over the last 12 months Pillai has created over 50 agency
Town and hail damage to summer crops in SAs Eastern agreements with local insurers and UMAs, in order to ensure
region, the need to develop climate-resilient communities is total market coverage. It is vital to have this type of access to
critical, she says. the market in order to get clients the most competitive pricing
and rates available, says Pillai. The competitive landscape for
Extreme weather conditions are becoming the norm and commercial broking involves small brokers who often only use
Santam believes it is important for the South African insurance two or three of the larger markets, and this possibly reduces
industry to develop meaningful ways of working with local and their effectiveness in accessing the best rates.
national government and for authorities to help communities
to deal with increasing number of weather disasters. PFP has invested in IT with the recent implementation of the
Genesys Ski system, which will be used for its commercial and
The Business-Adopt-A-Municipality (BAAM) initiative, a corporate administration processes, including issuing of policies,
strategic partnership with the South African Local Government administration of claims and collection of debit orders.
Association (SALGA) and the Department of Cooperative
Governance, is set to help municipalities bear the responsibility PFPs claims are all handled in house, headed by Agnisha
of managing ramifications of a disaster when it strikes an Carstens, who boasts over 32 years of short-term insurance
initiative Santam has joined. Santam also donated much experience.
needed fire-fighting equipment to each municipality earlier
this year and is currently rolling out fire fighting training with We are confident we now have the foundation in place to
the support of the Fire Protection Association of Southern really drive both our corporate and commercial growth in
Africa (FPASA). 2014, concludes Pillai.

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KINGJAMES 28087

At Santam, we know how important it is to stay up to date with the risks facing the modern
farmer. Which is why we take an in-depth scientific approach to assess all the adverse
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