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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 personal service around claims and the fastest turnaround on commercial
underwriting decisions. Want to meet us in person? Well come to you.
Contact Renasa today on 0860-renasa or visit www.renasa.co.za

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

Renasa DPS template.indd 4 2014/02/04 10:49 PM
 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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Untitled-1 1 2014/02/04 11:12 PM

 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

Tony van Niekerk
Competition
is not a chase
It is with great interest that I followed the
developments over the five days preceding the
writing of this editorial. Five days that went from
the wedding between the DA and Agang to the
honeymoon, and finally to the rapid divorce, with
the obligatory mudslinging.
It reminds me of the challenges big corporates and sales
management in financial services face, especially the
insurance industry, when competing with other companies
or teams. There is always the pressure to sign the next big
deal, to land that major client, to bring a large book across
or to attract that star salesman. This pressure increases
dramatically when year-end looms, or, in the case of
politics, when Election Day is close.
My years in business development and sales management
have taught me that you have to chase those deals and
pursue those books. The DA and Helen Zille, competing
against the ANC, had to make the move on Agang and
Ramphele. However, there are certain fundamentals to the
art of successful competition one relates to strategy and
the other to brand and communications.
Firstly, when it comes to strategy, it is essential never to
fall into the trap of chasing your competition. This trap
leads to the habit of following every move made by your
competition and trying to counter or emulate it. The
danger is that you take your eyes off your own game
and you try to play your competitors game. Every good
sportsman knows that you play your game according
6 COVER FEBRUARY 2014
February 2014.indd 6
Editorial
Editor-in-Chief
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.
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
of the team, it is about using every opportunity to the
advantage of the business.
When announcing a big deal, or launching a new product,
whether as a company or a sales manager, anticipate
future challenges and opportunities created by the current
win. The deal might go south, the book of business might
reveal big flaws down the line, the product might fail or
the merger might not be the big victory you hoped for. By
managing expectations from the start, you lower the risk
of brand damage if things do fall apart.
In the DA/Agang drama, the DA could have scored
major points, even if the deal went south. At the initial
announcement, the DA should have focussed on what
their brand stands for delivery. They should have
communicated the risk of entering into this venture, but
under the banner of realising the need for transformation
to ensure continued solid delivery. They should have
communicated that this was a deal done in a short time,
given the urgency of transformation in our country. When
failure came, they could have strengthened the brand by
simply stating that their demands are high, that they are
ruthless in their requirements for effective delivery and
that the deal showed flaws leading them to terminate
it, even in the face of certain flack. The message should
have been that for the DA delivery is more important than
saving face. Yet, they only said what they thought would
protect the brand and silence the competition. Their brand
suffered.
Strategically communicating your strategy is as important
as delivering on that strategy.
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
COVER spoke to Lovemore
Forichi, Senior Underwriter:
Agriculture for Africa at Swiss Re,
about Agricultural Insurance in
South Africa.
With food security a global topical
issue, there is need for all stakeholders
in the agricultural value chain to
play their part to ensure resilient and
sustainable agricultural production,
said Forichi. Farmers need to stay
on the farm and produce crops in
a sustainable manner by employing
risk mitigation measures that ensure
minimum production interruption.
The government can do a lot in terms
of promoting resilience in agriculture
through enabling policy frameworks,
investment in conservation agriculture,
disseminating prudent agricultural
practices through extension services,
and participating in one form or
another in the risk transfer framework.
The insurance sector then comes
in and protects the farmers capital
through sustainable insurance product
offerings.
In the past three years South Africa
has experienced severe hail, drought,
excessive rainfall, heat waves and
frost. Hail has been more widespread
compared to the past when these
events would normally be more
localised.
AGRI CONTRIBUTION
Agriculture contributes towards 2,6%
of South Africas GDP and around 10%
of the formal employment (FAOSTAT).
Government needs to recognise the
importance of agriculture for food
security and creating stability in the
socio-economic sphere. By working
with the farming community to
create resilience, and the insurance
industry to protect the farmers
capital, the government will create a
sustainable agricultural industry in the
country, especially for small holder
or emerging farmers who are by and
large underserviced today, and have no
capital reserves.
Agricultural insurance providers played
their part from a product offering
point of view. By adopting a diagnostic
approach, Swiss Re identified the
need to take steps to improve the
sustainability of the insurance and
reinsurance market. This will involve
putting in place corrective measures
and getting the market to revisit its
approach to insurance products, terms,
conditions and practices, and how
business is conducted.

8 COVER FEBRUARY 2014

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


ABOUT SUSTAINABILITY
The need for agricultural insurance in
South Africa is unquestionable. When
disaster strikes the insurer compensates
the farmer, who then doesnt need to
liquidate assets to remain in business.
Insurance keeps the farmer on the
land producing crops, maintaining
employment and contributing to socio-
economic welfare. Additionally, farmers
can use insurance as collateral when
approaching financial institutions for
loans for agricultural inputs, and use
their capital reserves for other projects.
Working together
towards new growth
Farming remains important for
the growth of South Africas
economy and job creation.
Approximately 639 000 people are
formally employed in the sector
(Statistics SA, 2012 Q2), and an
estimated 8,5 million people are directly
or indirectly dependent on agriculture
for their employment and income. In
addition, the agricultural sector features
strongly in the governments New
Growth Path (NGP), which aims to
create five million new jobs by 2020,
promote commercially oriented small-
scale farming and support smallholders
on land acquired through land reform.
Food security remains critical to the
country and the continent farmers
will need to double their production
efforts to ensure sufficient supply of
produce to meet growing demand.
In fact, it was recently stated at the
Third Global Conference on Agriculture,
Food Security and Climate Change that
sub-Saharan Africa will need 360% of
2006s food production by 2050.
COVER FEBRUARY 2014
February 2014.indd 9
Insurers absorb normal volatility.
However, when volatility becomes
chronic checks and balances have
to be employed to make sure that
the insurance product offering is
more sustainable for the benefit
of both the farming community,
and the insurance industry. Swiss
Re supports the local market
with its analytical and actuarial
capacity to do so.
Currently, the Agricultural
Insurance Committee of SAIA
is engaging the government and the
farming community in a lobby process to
create a Public Private Partnership similar
to that in countries such as Turkey,
Spain, Canada, China, or the United
States. South Africa can adapt a system
that best suits the local situation.
Well-established commercial
enterprises should work with emerging
farmers to support government
efforts. In order to make sure that the
broader farming sector is included in
Protecting this sector is critical to
transforming the economy, increasing
gross domestic product (GDP), and
spurring growth, reducing poverty
and contributing to sustainability,
eco-tourism and food security.
Collaboration between the insurance
sector and government therefore
becomes essential regulation and
policies need to be structured to
ensure a viable economic environment,
while ensuring investment in critical
areas like capacity building, risk
management, skills development and
employment. Government must also be
able to assist through subsidising food
production costs, supporting farming
projects and driving development
programmes. At the same time,
agri-insurance must ensure that risks
associated with agriculture covering
everything from property, livestock,
disease, equipment and irrigation
systems etc can be mitigated. This
type of insurance serves as an effective
transfer mechanism that can assist
farmers in achieving their farming and
business objectives.
the resilient, sustainable risk transfer
framework, the government can do the
following:
Set up a project management team to
ensure alignment of interests between
farmers, insurers and the state;
Facilitate within the ministry of
agriculture and finance to deploy
dedicated people for such a project;
Give financial support to fund a part
of the insurance premium; and
Ensure sustainability of the project
outcome through strict monitoring
and evaluation.
South Africas vast geographical
distribution of crops and different
climate experiences calls for more
prudent risk analysis, risk selection
and appropriate insurance product
offering. We need to look at the best
way of doing this correctly, while also
respecting local culture, concluded
Forichi.
THAMI GXABHU,
Product Underwriter,
Zurich Insurance Company South Africa
Growth opportunities for both
commercial and small scale farmers
are increasing, along with capacity
in the insurance industry to meet
the demand for niche cover. Global
insurers with a local footprint, such
as Zurich South Africa, have access to
a network of experts with specialised
knowledge in the field of agriculture
that are able to demonstrate a
deep understanding of the unique
challenges farmers face, responding
with tailored solutions.
The insurance industry needs to
establish propositions that work
towards creating a sustainable
agricultural environment that
benefits producers (small scale and
commercial), the market in general and
the country as a whole.
One way to achieve this is through
a sustainable risk management
environment supported by a
collaborative structure.
9
2014/02/04 11:45 PM
 Agriculture
When disaster strikes
keeping small farmers safe
Farming is a risky business.
South Africas extreme weather
affects harvests from drought
in the North West province to
floods in the Western Cape.
However, as much as 70% of the
R1 billion crops market in South
Africa remains uninsured.
When it comes to the R1 billion market
for crop insurance and the R4 billion
market for asset insurance, Mutual
& Federal is one of the top three
insurers, along with Santam and ABSA.
Approximately 18 insurance companies
operate in this market, with the major
players insuring 70% of the market.
Agri Insurers serve a diverse farming
community that consists of large
corporations, general farmers and small
scale farmers. There are approximately
35 000 farms versus 80 000 farms
in the 1970s, due to consolidation
rather than a reduction of farming
activities. There is a move towards
scale and combining efforts, with fewer
operations supplying more.
Larger commercial operations tend to be
well covered for basic needs, particularly
assets. The high levels of underinsurance
10
February 2014.indd 10
in South Africa relate largely to smaller
scale operations, where uptake follows
the patterns of the domestic insurance
market. Where any form of financing is
involved, insurance is a requirement and
becomes a forced purchase.
The health of the Agri Insurance
market is related to the well-being
and circumstances of agriculture itself.
While agriculture in South Africa
remains inherently healthy, smaller
farmers are pressured to compete with
large operations. This results in farmers
reducing running costs like herds, asset
bases and expenses such as insurance,
limiting the level of value chain
involvement for insurers.
Farmers need a better understanding
of the critical role that insurance plays
in basic management practices. Mutual
& Federal places strong emphasis on
financial education initiatives, teaching
farmers the value of insurance, and
supporting agricultural schools.
The insurance industrys challenge
is to come up with feasible product
solutions for various risks, including
livestock risks, geared to the specific
needs of these farmers.
Mutual & Federals strong new market
focus on tailored product development
goes further than traditional asset
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.
The company engages with the
government as a member of the
Agricultural Business Chamber towards
a common goal a successful and
sustainable agriculture community.
Farmers are still dependant on private
sector companies to help manage
risk. To remain sustainable, it is
important to partner with a broker
and insurer that understands the risks
inherent in agriculture and will provide
solutions to meet specific insurance
requirements.
ANDRIES WIESE
Manager: Market
Intelligence & Marketing,
Mutual & Federal Agri
COVER FEBRUARY 2014
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
Farmers face a daunting year in
2014, with continuing drought in
some areas, changes in weather
patterns, the probability of
legislative changes and ongoing
land reform initiatives, the
unrelenting electricity and power
crisis, and simmering labour
unrest.
The agriculture sector is already hard-
hit financially, leading a large reinsurer
to withdraw from the crop insurance
market in 2013, although Santam has
declared its continued support for
farmers.
The knock-on effect of these
challenges is that there is a real
concern about whether the country can
continue to enjoy stable food security,
with current media reports already
questioning whether farmers can
produce sufficient food for the nation.
THE FOOD SECURITY CHALLENGE
The demand for food in South Africa
has increased substantially in the past
decade and is expected to continue,
12
February 2014.indd 12
THE DEMAND FOR FOOD IN
SOUTH AFRICA HAS INCREASED
SUBSTANTIALLY IN THE PAST DECADE
AND IS EXPECTED TO CONTINUE...
driven by a growth in population and a
rise in consumer spending power.
Commercial farmers have faced
tough times in the past and continue
to be exposed to risks. In addition
to the challenge of supplying more
food with less arable land at their
disposal, farmers still face the ever-
present issues such as volatile prices
and extreme weather conditions and
are becoming unable to plan for such
unpredictable events.
Food security highlights the importance
of insurance in the agriculture sector,
as effective risk management through
adequate crop and asset insurance
is crucial, especially for large-scale
farmers, who need to continue
operations despite losses and setbacks.
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
must stand together and support each
other. Santam is committed to stand
by farmers in these challenging times,
to build on the importance of crop
insurance and to achieve sustainability
in the agricultural sector.
GERHARD DIEDERICKS
Head of Santam Agriculture
COVER FEBRUARY 2014
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

WHAT ARE YOUR CURRENT VIEWS
ON AGRI INSURANCE IN SOUTH
AFRICA?
Grain SA Chairperson Louw Steytlers
comments on maize production in
2013 are an appropriate starting point
for this discussion.
According to Steytler, South Africa
could face a shortage of maize next
year, and maize producers are finding
it difficult to get production credit.
He believes that high input costs and
drought in the western production
region are compromising the long-
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
three years.
Another major concern is the
deterioration of road infrastructure in
agricultural regions, causing loss of life
and damage to vehicles from potholes
and other road irregularities.

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*Terms and conditions apply.
We provide a full range of value-added products and services for the insurance industry.
Visit www.oneloyaltyrewards.co.za for more information or call us:
Anthony Kotton: +27 82 784 4271
anthony@oneloyalty.co.za
Ryan Grill: +27 82 552 8216
ryan@oneloyalty.co.za
Office: +27 11 291 7300

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
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PERSONAL LIABILITY TOP-UP (XOL AND UMBRELLA)
PRODUCTS LIABILITY
WAREHOUSEMENS AND CARRIERS LIABILITY

PROFESSIONAL INDEMNITY
ARCHITECTS
ATTORNEYS
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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
CONTENT AND WORDS IN
INSURANCE POLICIES
With a number of regulations in
place to protect and inform short-
term insurance policy holders, such
as the Consumer Protection Act
(CPA), Treating Customers Fairly (TCF)
and with more regulations like the
Protection of Personal Information
Bill (POPI) on the way, the manner in
which policy documents are compiled
for consumers will come under
scrutiny.
According to a survey conducted by
Santam, 75% of respondents read
their insurance policy documents
on a regular basis, and though they
found their documentation to be
comprehensive and useful, there is
still a feeling that language can be
simplified and fewer industry terms or
jargon should be used.
Respondents highlighted that the
documentation was too long. 47%
of respondents suggested that policy
documents should be more consumer
47% OF
RESPONDENTS
SUGGESTED THAT
POLICY DOCUMENTS
SHOULD BE MORE
CONSUMER
FRIENDLY...
18
February 2014.indd 18
friendly with easy to reference sections
and summaries outlining limitations,
cover details, and exclusions written in
everyday language.
The clients understanding of their
policy is important for peace of mind
in knowing that they are adequately
covered, and that they understand
the relevant processes involved when
having to claim.
Policy wording for both the consumer
and intermediary must be user-
friendly and transparent. The aim
of policy documents is to clarify the
contract between the insurer and the
policyholder, clearly outlining the terms
and conditions of the policy undertaken
and the cover set in place.
Many of the survey respondents were
positive, acknowledging that the claims
process was clearly outlined in their
policy documents.
SUPPORTING THE INTERMEDIARY
Intermediaries use policy documents
to guide their clients in terms of
the products most suitable for each
clients individual needs. User-friendly
documents are important to ensure
a good working relationship between
policyholders and intermediaries.
According to respondents, 20% of
policyholders do not pay attention to
their policy documents at all, leaving
it to their intermediary to explain
all its intricacies to them, further
demonstrating the importance of the
intermediary, whatever the language
and format of the policy document.
Similarly, respondents (46%) did not
attempt to use the policy document to
lodge a claim, preferring to call their
intermediary and leave them to handle
the entire process.
Together with the responsibility of
ensuring that their client understands
and agrees with the insurance cover
selected, it is important that the
intermediaries take their clients
thoroughly through the policy
documentation to make sure all details
are understood and taken note of,
especially when referring to exclusions
and key processes. Clients are also
urged to ensure that the information
provided is correct and that they are
adequately insured.
COVER FEBRUARY 2014
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


Services Act (FAIS Act) and regulatory
exams. In the UK and Australia some of
the changes had only been introduced
in tandem with the changes in advisor
remuneration. In a South African
context, the FAIS Act, especially the
Code of Conduct which regulates how
financial planners should act in relation
to the customer, has already created
significant change in this regard. So,
in a sense, there is some comfort to
be had that South Africa has begun to
adapt to some of the changes regarding
financial planner remuneration such as
disclosing fees to customers with the
introduction of FAIS.
The positive aspect about the on-
going advisor fee discussion is that it
reinforces that advisory services are
not free of charge and have to be paid
for. This will promote the importance
of what financial advisors do and
reinforce the value of the services
they provide.
However, the major issue which may
arise is lack of business continuity as
a result of potential cash flow squeeze
when the changes are introduced.
The other issue that may occur is
that the future changes may lead to
COVER FEBRUARY 2014
February 2014.indd 21
exclusion of certain customers from
accessing financial planning services
purely because the financial planning
services become expensive. In the UK,
for example, the consequences of the
changes to the remuneration were
that the financial planners aggressively
focused on wealthier customers whilst
certain pockets of customers were
inadequately serviced. Of course non-
traditional methods of dealing with
customers have also been developed
i.e. face-to-face engagement with the
customer is not necessarily required.
HOW DO WE DEAL WITH THE
COST OF REGULATION, WHICH
IS HAVING HUGE IMPACT OF
DISTRIBUTION MODELS?
I believe that the catalyst for
less regulation is to have a more
professional financial advisory
environment. The customer should
be the focus for the industry when
we continuously improve treating our
customers fairly and in a professional
manner, regulation measures will be
fewer in the future. Over and above
changed behaviour in terms of treating
customers fairly, I think that more
businesses are investing in systems
that facilitate for ease of complying
MAKE SOUND FINANCIAL DECISIONS.
ADVISORS IS THERE TO HELP CUSTOMERS
ASTUTE AND OUR OCCUPATION AS
MOST PEOPLE ARE NOT FINANCIALLY
with regulation, so that the cost of
regulation is lessened. This obviously
requires heavy initial investment for
businesses, however the costs reduce
in the long run.
HOW DO YOU SEE YOUR BUSINESS
MODEL OVER THE NEXT FIVE
YEARS?
Our primary objective is to create value
and memorable experiences for our
customers. This requires that we invest
in the people that serve customers and
also create standardisation of certain
disciplines and processes. We aim to
increase the number of planners with
the CFP qualification in our business as
we believe that will add to the quality
of the engagement we have with our
customers.
Our customers have also come to
expect that we engage with them
utilising different mediums and this will
be our focus in the next few years-
improving the customer interfacing
capabilities. This will include investing
in well-understood advice processes,
supported by appropriate systems.
Our business model will be built on
having the customer at the centre of us
achieving sustainable growth.
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
Global Consumer Insights Series
on Mobile Money on 22 January
2014. The report analyses data
from 10,000 respondents in 13
countries, highlighting regional
and global trends in mobile
money uptake and how it is
stimulating growth across the
mobile value chain.
In 2013, 15% of mobile media users
made some form of mobile payment
to make a purchase. The largest
group of these users (7% of the total
sample) did so via a mobile wallet,
especially those based on Near Field
Communications (NFC) technology.
GLOBALLY, 91%
MADE SOME FORM OF
MOBILE PURCHASE IN
2013 AS OPPOSED TO
65% OF ALL MOBILE
CONSUMERS.
The report, carried out in partnership
with On Device Research, highlights the
importance of mobile money users to
the overall m-commerce market, as this
group is 26% more likely to purchase via
mobile. Globally, 91% made some form
of mobile purchase in 2013 as opposed
to 65% of all mobile consumers.
Mobile money users spend more on
individual purchases. They are 10% less
likely to make low value payments and
14% more likely to make mid-value
purchases.
22
February 2014.indd 22
MEFS 13-COUNTRY MOBILE MONEY INSIGHT
REPORT REVEALS GLOBAL CONSUMER TRENDS AND
BEHAVIOURS IN M-PAYMENTS AND M-BANKING:
15% of mobile media users used mobile payments to pay for
goods in 2013.
Mobile money users are 26% more likely to buy via mobile
than average.
Africa continues to dominate mobile banking uptake with
an average of 82% of consumers engaged in this activity
(globally its 66%).
Network speed is important: two thirds of 4G customers have
made an m-payment.
www.mefmobile.org
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
more likely to use location based mobile apps for checking balances and
services. paying bills is commonplace, whereas
in Africa handsets are used to send
airtime to other users, transfer funds
and seek credit.
In Africa, the mobile-only culture
means the mobile money account is
the bank account. Globally, 66% of
mobile media users use some form of
mobile banking. In Kenya, for example,
its 92%.
The study reveals the importance
of network speed to the uptake of
mobile money. A quarter of users
claim they dont make mobile
payments because the network is too
slow. That might help explain why
fewer than one in seven mobile media
users have made some form of mobile
payment.
Conversely, those connected to super-
speedy 4G networks are much more
engaged: almost two in three (64%)
have made a mobile payment.
COVER FEBRUARY 2014
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
assessment is considerably more
scientific than perceptions about the
dangerous driving habits.
Insurance companies use statistical
models and algorithms that take into
account all the factors in a vehicle
users risk universe to determine the
overall risk profile and premium.
A drivers age, gender, geography,
nature of travel, vehicle make, model
and age, among dozens of other
factors, determine a unique risk profile.
Telemetry systems are a great tool
for trying to change behaviour while
reducing insurance costs. They highlight
poor driving behaviour like speeding,
harsh acceleration and braking, where
and when you drive and how often you
are behind the wheel. Conversely, if the
tracker records good driving behaviour or
any improvements, a drivers risk profile
will automatically adjust over time.
In May last year, South Africa was
ranked as worst out of 36 countries
when it came to the number of road
fatalities. The Road Safety Annual
SOUL ABRAHAM
General Manager: Car & Home
Regent Insurance
Report compiled by the International
Transport Forum revealed that in 2011
there were 27,6 deaths per 100 000
inhabitants in South Africa.
Telematics influences driver behaviour
by encouraging individuals to assess
their own driving before pointing
fingers at drivers of those vehicle
brands perceived to wreak havoc on
the roads.

26 COVER FEBRUARY 2014

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

 Dont tweet and drive
A new survey has revealed that
four out of the 10 top driving
distractions that could cause
motorists to have an accident
are related to using a mobile
device at the wheel.
Another study lists the use of handheld
devices as the number one driver
distraction.
The first survey conducted
by UK-based website, www.
moneysupermarket.com, showed that
although eating and drinking at the
wheel remains the biggest distraction
for drivers, SMSing, speaking, updating
Facebook and sending tweets on a
mobile device while driving are among
the top ten most common dangerous
distractions for motorists.
COVER FEBRUARY 2014
February 2014.indd 27
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
other potential
distractions
including talking
to passengers,
tinkering with
dashboard
controls, eating,
smoking, and
applying make-
up, among others. The Road Traffic Management
Corporation says that drivers who use
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
Traffic Safety in the US, motorists who enough to injure themselves. To use a
use cellphones while driving are more cellphone while driving is considered
likely to engage in additional dangerous six times more dangerous than driving
behaviours such as speeding, driving under the influence of alcohol.
drowsy and driving without a seatbelt.
A Carnegie Mellon University Study
In South Africa, the Automobile found that merely listening to
Association recently counted 2500 cars somebody speak on a phone causes
during a morning rush hour to find that a 37% drop in activity in the parietal
7,2% of the drivers were on their phones. lobe where spatial tasks are managed.
27
2014/02/05 12:03 AM
 Working with
WHEELS
Global Telematics
MOTOR FINANCE NEWS FROM
EUROPE
Statistics provided by Finaccord,
a market research consultancy
specialising in financial services.
Car dealers and manufacturers in
Europe have had a tough time in
recent years, with new car registrations
falling in a majority of countries, with
a few exceptions like Russia, Turkey
and the UK. Dealerships and car
manufacturers have become more
reliant than ever on generating revenue
from financial and other services that
can be cross-sold with cars.
Finaccord estimates that dealers sold
policies worth EUR 16,3 billion in
revenue in 2012 (measured as gross
written premiums and similar revenues)
across six major insurance, warranty
and assistance types plus niche
insurance products that are present in
some of these countries.
The six main types are motor
insurance, extended warranties, prepaid
service contracts, creditor insurance,
28
February 2014.indd 28
GAP (guaranteed asset protection)
insurance and road assistance, while
the niche products range from
passenger accident insurance in Austria
to tyre insurance in the UK.
FINACCORD ESTIMATES
THAT DEALERS SOLD
POLICIES WORTH
EUR 16,3 BILLION IN
REVENUE IN 2012.
Just over half of this figure was new
business generated from car sales
made in 2012 (EUR 8,6 billion), while
the rest came from policies connected
to cars sold in previous years that were
still in force in 2012 (EUR 7,7 billion).
In some countries, revenue from the
sale of these financial services is nearly
twice that of the European average.
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
of new and used cars sold by dealers
to retail customers in 2012. This is
for ten of the 25 countries studied
by Finaccord, namely the six largest
markets in Europe for these products
overall plus two other countries where
these products are most important
and the two countries where they are
least important, in percentage terms.
Motor insurance is the most important
of these financial services, amounting
to 46% of these revenues coming
from the automotive trade. Germany
and Russia were the most important
markets for motor insurance sold
through this channel, with gross
written premiums of EUR 324 million
and EUR 481 million respectively, for
new business in 2012. However, this
means that across Europe as a whole
over half of this market is made up
from other products and in France and
the UK motor insurance accounts for
no more.
Visit finaccord.com for more motor
finance information in Europe.
COVER FEBRUARY 2014
2014/02/05 12:03 AM
 Fraud is on the RISE
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
actively defrauded as a result of
a lack of control when dealing
with questionable towing
companies.
The insurance industry has long since
grappled with the management of
accident vehicle towing. How do I
control where the vehicle goes after it
has been towed by a tow truck? When
will I be notified where the vehicle is
being stored? How do I verify that the
invoice I receive for towing services
is equitable? How much additional
damage is the vehicle suffering in
storage? How do I cut down on claims
turnaround times if the vehicle is
COVER FEBRUARY 2014
February 2014.indd 29
inaccessible for days, sometimes weeks
because of stalling tactics by storage
yards?
The industry spends upwards of
R900m per year on towing. How much
of this are over charges and exorbitant
release fees? Not to mention the
incalculable cost of employee down
time when dealing with these
frustrating issues.
TOW TRUCK OWNERS HAVE
PROBLEMS TOO
Long delays in receiving payment,
lack of communication with insurance
companies lead to misunderstanding
and distrust. Smaller operators
are battling to get into the market
SHAUN WASO
Managing Director
Affinity Group
space as bigger towing companies
and associations hold contracts with
insurance companies. The bigger
towing companies in turn use these
contracts to control the industry by
subcontracting to smaller towing
companies at reduced rates which
stifles competition and a free market
environment.
A transparent and fair relationship
between the towing and insurance
industries will be welcomed by the
majority of both parties.
This article was shortened and
republished with permission from the
author. For the full article visit the
Affinity Groups July newsletter.
29
2014/02/05 12:04 AM
 Working with
WHEELS

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

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?
According to TomTom data,
68% of the road name changes
in South Africa happened
in Durban, with 17% in
Johannesburg, 11% in Pretoria
and 4% in Cape Town.
COVER FEBRUARY 2014
February 2014.indd 31
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
owners will be able to equip their
team members on the ground with
SINCE 1994, OVER 400 quality information and a tool to help
ROAD NAMES HAVE CHANGED them complete their tasks efficiently,
ACROSS SOUTH AFRICA resulting in an efficient business, says
Daan Henderickx, General Manager of
TomTom Southern Africa.
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
their assets against loss or damage, which could include
stock, machinery, electronic equipment, money, glass
and documents. They also need to consider if cover is
needed for property in transit or at premises elsewhere
than at the specified premises.
For many businesses, the devastating effects of a blaze
may only be realised days or weeks after a fire has
been extinguished.
SIMPLE STEPS TO REDUCE OR
ELIMINATE THE RISK OF FIRE
Check the electrical wiring of your business.
Make sure that you do not overload power points
and that you switch off appliances from the plug
point when they are not in use.
Conduct annual re inspections at business
premises using re risk management experts.

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

32 COVER FEBRUARY 2014

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

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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
losses suffered by insurers,
commerce and industry every
year. Fire claims tend to be high
value, high visibility claims. In
2012 the industry experienced a
significant level of fire loss during
the St Francis Bay fires, and a
significant number of commercial
and corporate fire claims were
made in 2012 and 2013. While
the number of fire claims hasnt
increased, our experience is
that the severity has increased,
notwithstanding claims inflation.
Currently, there is a sense that
business enterprises are under pressure
due to the challenging economic
times and that they are focused on
survival, and therefore not as focused
on risk management. While insurance
programmes transfer some of the fire
risk to the insurer, enterprises still
suffer losses beyond the replacement
of assets and the business interruption
34
February 2014.indd 34
cover, for example: loss of clients
and the distraction of management
and executive. Many corporate fires
could have been prevented through
appropriate risk management. It is in
an enterprises best interest to invest in
risk management from an ideological
and operational perspective.
As an insurer, we are concerned with
the quality of risk, pricing of risk and
risk management, and we feel that
local expertise is essential to provide
adequate service to brokers and clients.
Mutual & Federal takes a holistic risk
management approach across the
underwriting, risk management and
claims disciplines, employing local
decision makers and experts who
are accessible to brokers and clients
through the respective processes. In
order to assess risk in commercial
and corporate enterprises, we employ
expert fire surveyors who produce a
KAREN MILLER
Mutual & Federal
Executive: Corporate & Niche
report on the extent and quality of
the risk. Clients value these reports,
as they provide an independent
source of verification and guidance
on the risks inherent in their business
premises, and provide risk management
recommendations and requirements.
There are consequences to the
quality of risk and these play out in
pricing, required risk improvements
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.
COVER FEBRUARY 2014
2014/02/05 12:11 AM
JHB 44515

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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
reports is of delays at certain
roads because a truck has lost its
load and this highlights just one
of the many risks commercial
road transport insurance faces.
Other risks include hijacking or
theft of loads, weather-related
and collision losses.
Damage can occur to load, truck and
trailer. A first step in GIT insurance is
to separate the risk of damage to each
of these, as it represents a significant
accumulation of risk if one carrier
has insured all three and such loss or
damage occurs. Then, the resultant
36
February 2014.indd 36
loss ratio of an individual account can PAUL BUCKLEY
be catastrophic. However, separating Managing Director
XL Transit
the risks diversifies the losses and
therefore protects both the brokers and
the clients performance.
To price accurately a goods-in-transit
risk, it is imperative to measure risk On average, 28 motor
exposure correctly. Unpacking the
three different approaches to rating vehicles were hijacked
(estimated haulage fees, estimated every day in 2012/13.
annual carry and load limit per truck) Vehicle hijacking increased
on GIT cover will help determine the
most accurate measurement of risk by 5,4% to 9 990 incidents.
exposure. Source: africacheck.org
The estimated haulage-fee approach
is undoubtedly the weakest. Very
few businesses will over-estimate
their haulage-fee income when this
COVER FEBRUARY 2014
2014/02/05 12:11 AM
 TO PRICE ACCURATELY A
GOODS-IN-TRANSIT RISK, IT
IS IMPERATIVE TO MEASURE
RISK EXPOSURE CORRECTLY.
forms the basis of their premium. This
approach does not consider the limit
or nature of the load, the fleet size or
geographic distribution area. In short,
it is an inaccurate measurement of the
true risk exposure.
Estimated annual carry certainly
measures and reflects the risk exposure
more accurately than the haulage-
fee basis. It considers the limit of the
loads and the number of carries over a
period and these give some indication
of the distances the respective loads
will travel. But it is still an estimate,
which is an inaccurate measurement
and places the onus for the rate basis
and premium determination on the
very entity that will be paying it.
COVER FEBRUARY 2014
February 2014.indd 37
Recent experience highlighted glaring
inaccuracies in matching premium price
to risk exposure. In one example, the
load limit was stipulated as R1 000
000 and the estimated annual carry
was R16 000 000, therefore assuming
an average of 1,5 loads per month
for carriage. The fleet list, however,
showed 60 trucks specified. The loss
ratio was in multiples of hundreds.
When the broker has to rebroke
this account, the clients loss ratio is
enormous, not merely because of the
frequency and severity of the claims,
but also because of the mispricing
of the risk owing to the inaccurate
approach.
The basis of load limit per truck is the
best measurement of risk exposure.
It assumes that the operator will
be running consistently and daily
according to the business needs. It
requires a specified load limit and the
specified trucks where that limit will
apply. It is then adjusted according
to the nature of the load, the
geographic distribution area and can
be discounted or loaded, depending
on the applicable historic loss ratio.
These five factors, namely the number
of trucks, load limit per truck, nature
of the load, distribution area and
historical loss ratio, provide the most
accurate means of measuring risk
exposure. It also takes determining
the risk away from the operator
and places it with the underwriter,
involving minimal estimate.
A particularly large fleet may
require blanket cover and it would
be impractical having to specify
each truck and its limit. Here a
combination of load limit per truck
and estimated annual carry could
serve as a measurement. The fleet
list could then be checked every
six or twelve months to determine
the fleet growth or reduction and,
depending on claims, the premium
stepped up accordingly.
In general insurance, the goal should
be to eliminate estimates as much as
possible and strive for accuracy. This
applies to a greater extent to the high-
frequency claim market of GIT.
37
2014/02/05 12:11 AM
 Short-term
There is no long-term benefit to
gut feel underwriting.
WE HAVE NOTICED DRAMATIC
CHANGES IN THE SOUTH AFRICAN
ENGINEERING INSURANCE MARKET.
The engineering short-term industry
has grown by capacity and in the
number of underwriting managers
and agencies, but has expertise
grown in the same proportion? Are
we underwriting using technical skills
or gut feel or do we just follow the
leading underwriter?
We have noticed dramatic changes
in the South African engineering
insurance market. It seems that good
engineering risk underwriting is being
replaced by gut feel underwriting.
In the past new underwriters were
trained by highly skilled engineering
underwriters from our professional
reinsurers, larger insurance companies
and brokers. They had rating manuals
38
February 2014.indd 38
to assist with the proper compilation
of a quotation. The rates reflected in
these manuals were accumulated and
compiled over a period of many years
and were based on statistical data.
One could argue that technology
has reduced the perceived risk, and
therefore attracted lower terms, but
repair costs have also escalated.
The number of skilled underwriters
has reduced due to natural attrition.
The training role played by insurance
companies and brokers is being
hampered by new anti-collusion
regulations and financial constraints.
Make no mistake, gut feel is an
important part of underwriting, but
it is crucial that gut feel is supported
by experience and backed by the
application of solid underwriting
principles.
Brokers spend a lot of time preparing
broking notes with referrals to
additional reading, but do people read
and understand broking notes? We
are seeing a large number of projects
taking place in Africa. Broking notes
may sometimes be limited due to time
constraints.
We cannot only rely on gut feel to
underwrite the risk. First prize would
be to visit the site, ask questions, and
gather first-hand information on the
experience of the project manager and
his construction team. This will enable
the underwriter to present terms and
conditions appropriate to the risk.
But why do underwriters accept
risk when they dont have all the
underwriting information? Is the
reason a lack of expertise, managerial
pressures to achieve premium income
targets, time pressures, or all of the
above?
I would assume that no underwriter
would like to explain to his directors
that he accepted the risk on gut feel.
At the end of the day the underwriter
is accountable and needs to take
responsibility for his actions.
The insurance industry is no different
to any other industry. Experience
comes with time which includes highs
and lows. If gut feel underwriting
continues without the necessary
experience or knowledge of the risk
we will see the demise of a number of
underwriting managers.
COVER FEBRUARY 2014
2014/02/06 7:33 PM
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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
construction industry for clients
awarding construction contracts
to building contractors to insist
that the contractor furnish a
guarantee from an acceptable
party, and a guaranteed sum
is payable to the client upon
cancellation of the contract on
the basis of default on the part
of the contractor.
Such guarantees, which are regularly
issued by insurance companies short-
term insurance business, provide
40
February 2014.indd 40
for the insurer undertaking to make
payment upon receipt of a first written
demand from the beneficiary calling up
the guarantee.
Insurers have attempted to avoid
liability under the guarantee on the
grounds that the client was not entitled
to cancel the agreement, that the
contractor fulfilled his obligations
or that the problems experienced
by the client were caused by faulty
design rather than the conduct of the
contractor.
Beneficiaries to a construction
guarantee have argued that the
purpose of such a guarantee is to
enable the beneficiary to obtain
payment for loss suffered through
the conduct of the contactor by the
production of the documentation
specified in the guarantee. The
guarantee was enforceable according
to its terms, and the introduction of
extraneous issues as a defence was
precluded, save for limited exceptions
like fraud. This approach has its
origin in the English Law relating to
letters of credit issued by banks which
required the issuing bank to pay if
the documents provided to it were in
order and the terms of the LOC were
satisfied, any dispute between the
parties to the underlying contract to be
determined by those parties alone. The
COVER FEBRUARY 2014
2014/02/05 12:12 AM

BRIAN MARTIN
Legal Manager at Renasa Insurance
Company Limited, asks, is the liability on
an insurer absolute and unconditional?
English courts regarded performance
bonds, the equivalent of a contraction
guarantee, to be virtually promissory
notes payable upon demand (see
Edward Owen Engineering Ltd vs
Barclays Bank International Ltd 1978 1
All ER 976 (CA)).
The party who issues such a guarantee
must honour the guarantee according
to its terms and must not become
concerned in the relationship between
the parties to the underlying contract
and whether the contractor is in default
or not. It must pay on demand without
proof of conditions.
This approach was followed by courts
in South Africa (see Loomcraft Fabrics
CC vs Nedbank Ltd & another 1996 (1)
SA 812 (A)) on the basis that banks
should honour their obligations under
irrevocable letters of credit without
judicial interference, so long as fraud
was not involved, on the grounds that
such documents were the lifeblood of
commerce .
Rights obtained by such contracts
should be treated as the equivalent of
cash in hand.
The approach adopted by the Appeal
Court in the Loomcraft case was
affirmed by the Supreme Court of
Appeal in 2010 as being applicable to
performance guarantees, in the case
Lombard Insurance Company Ltd vs
COVER FEBRUARY 2014
February 2014.indd 41
Landmark Holdings (Pty) Ltd 2010
(2) SA 86 (SCA) the court viewing
such guarantees as being not unlike
letters of credit issued by banks.
The obligation of the issuer is wholly
independent of the underlying contract
and whatever disputes may arise
between the parties to the underlying
agreement is of no importance to the
issuer who is liable if the conditions
specified by the guarantee are met.
The only basis upon which liability can
be avoided is proof of fraud on the part
of the beneficiary.
However, following upon the decision
of the Supreme Court of Appeal in the
case of Dormell Properties vs Renasa
Insurance Co Ltd NNO 2011 (1) SA 70
(SCA) decided only a year after the
Lombard case, the traditional view of
the guarantors liability was called into
question.
In the Dormell case, Bertlesmann AJA,
who delivered the majority judgement,
stated that:
THE ARBITRATION HAD
TAKEN PLACE IN TERMS OF
THE CONTRACT CONCLUDED
BETWEEN THE CLIENT AND THE
CONTRACTOR WHICH FOUND THAT
THE CLIENTS REPUDIATION OF THE
CONTRACT HAD BEEN UNLAWFUL.
In principle therefore, the guarantee
must be honoured as soon as the
employer makes a proper claim against
it upon the happening of a specified
event. In the present case there is
no suggestion that Dormell did not
properly demand payment of the
guaranteed sum.
However, despite this finding, the
Judge then curiously proceeded to
have regard to an arbitration award
made in favour of the contractor. The
arbitration had taken place in terms of
the contract concluded between the
client and the contractor which found
that the clients repudiation of the
contract had been unlawful. The Court
reasoned that as a consequence of the
arbitration finding the beneficiary had
lost the right to enforce the guarantee
against the insurer which had issued
it and there remained no legitimate
purpose to which the guaranteed sum
could be applied.
This approach seemed to equate
the liability of the insurer under the
guarantee as that of a co-principal
debtor whose liability depended upon
the liability of the main debtor, the
contractor in terms of the construction
contract, rather than one arising
from an independent agreement. The
guarantee issued by the insurer was
viewed as accessory to the underlying
contract. This view contrasted sharply
with the view of the minority judges,
as set out by Cloete JA, who stated
that whatever disputes there were
or might have been between the
client and the contractor, these were
irrelevant to the insurers obligation to
perform in terms of the construction
guarantee and there was no need for
the beneficiary to allege that it had
validly cancelled the building contract
due to the contractors default.
The minority judges specifically
approved of the Loomcraft Fabrics
and Lombard decisions as well as the
judgement of Lord Denning MR in the
Edward Owen Engineering case.
It would not be long before the
confusion created by the Dormell would
come back before the SCA. In 2013
the SCA had to again decide whether
to follow the reasoning of the majority
or minority judges in the Dormell case,
this time in the matter of Coface South
Africa Insurance Co Ltd vs East London
Own Haven ( Case No 050/2013
). The Court after conducting a
thorough analysis of all the previous
decisions referred to as well as its own
decisions on the liability of banks in
terms of Letters of Credit given after
the Dormell decision, concluded that
Dormell had been wrongly decided
and that the liability of a guarantor in
terms of a performance guarantee was
absolute and unconditional. The Court
acknowledged without qualification
that the decision of the majority in
Dormell was clearly wrong.
The wheel has now come full circle
and it can now be regarded as settled
law that the liability of an insurer who
issues a Construction Guarantee is
absolute and unconditional subject only
to the terms of the guarantee being
fulfilled and there being no fraud on
the part of the beneficiary.
41
2014/02/05 12:12 AM
 Liability Insurance
Are you prepared
for the total Recall?
As globalisation is reaching into
countries which have not been
exposed to it in the past, the
exposure resulting from this
expanded trade has increased
severely, states Wolfram-F.
Schultz, Regional Head of
Liability of Allianz Global
Corporate & Specialty Africa.
African companies should
observe the exposure and
prepare themselves accordingly.
Since the ushering of the new
democracy, South African trade has
increased substantially. This is due
to the lifting of several sanctions and
boycotts which were imposed on South
Africa in the past. The last figures
published for August 2013 by the SARS
do show that exports have reached a
volume of ZAR 70,70 billion from ZAR
61,4 billion in August 20121.
South Africas role as export nation is
mainly based on its minerals. South
Africa is the worlds largest producer
of chrome, manganese, platinum
and vanadium. Furthermore, South
Africa is the second largest producer
of gold. It is also the worlds third
largest coal exporter, even if the
role of coal exports within the GDP
declined sharply compared to the
1980s. As result, in 2011, fuels and
mining products in the value of US$
41,1 million were exported. The large
agricultural sector and the plenty of
goods manufactured in South Africa
also add significantly to the exports
(Agricultural goods US$ 9,2 million/
Manufactured goods US$ 38,1 million).
These three areas at the same time
represent the main commodity groups
according to data from World Trade
Organisation2.
South Africas principal international
trading partners are the European
Union (mainly Germany, the United
Kingdom and Spain), China, the United
States, Japan and India. Looking at the
figures connected to those countries,
42
February 2014.indd 42
it becomes quickly clear that the
European Union and China are by
far the main export partners, with
the European Union representing a
volume of US$ 22,3 million and China
representing US$ 13,4 million in South
African exports2.
With increasing exports and
globalisation comes a greater risk of
claims resulting from the exporting of
goods. One threat of this globalisation
can manifest itself in costs suffered
due to a recall of products to prevent
bodily injury and/or property damage.
These recalls may be triggered by a To be prepared to face such exposure
faulty product, malicious tampering South African companies need to put
robust systems in place to reduce
or even product extortion and can
the loss potential. These systems
cause high costs for the recall itself
should, for example, look at the
and financial losses and reputational
monitoring of customer complaints,
damages for the company. This higher
cooperation with suppliers related to
propensity of being confronted with
changes in product and/or packaging,
claims from business partners and end
contractual arrangements to pass
consumers from various jurisdictions is
risk back to suppliers in case of a
valid for all industry sectors.
problem caused by the supplied
product, communication of a recall, the
execution of the crisis plan in case a
SOUTH AFRICA IS THE recall needs to be triggered - including
the After Care to secure that the
WORLDS LARGEST impact of the recall will not lead to a
loss in market share or, even worse, to
PRODUCER OF CHROME,
the insolvency of the company.
MANGANESE, PLATINUM
Further to the pro-active risk
AND VANADIUM. management, a cover for recall
triggered by a faulty product, malicious
tampering or even product extortion
should be in place. The scope of cover
The number of recall notifications by
should be led by the risk appetite
country of origin of the notified product
and exposure the products are faced
recorded for 2011 varied from 1 (for
with, and the limits purchased have to
example, Austria, Egypt, Israel and
mirror the different exposures around
Norway) up to 990 (China)3. Not all
the world. Such an insurance solution
industry sectors are similarly exposed
completes the risk management
to recalls, but looking at South Africas
measures so that the business can
main commodity groups exported, reduce the propensity of a recall and
the exposure for a recall connected limit the impact of a recall if it does
to exports to South Africas main happen.
export destinations can be seen as
increasing from year to year. It can be
noticed that tighter and more complex 1: SARS: South African Trade Statistics for
product safety legislation has driven August 2013
up the number of recalls. As these 2: WTO: Trade Profiles
are external effects, many businesses
underestimate the exposure such 3: Strategic Risk: A Report on Product
changes comprise for their brand. Recall/2011
COVER FEBRUARY 2014
2014/02/05 12:12 AM
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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
disability claims were due to Aids. Ten
years later Aids claims accounted for
more than 10% of total disabilities.
However, Parkin says that while the
number of claims linked to Aids has
increased, the disease remains a
relatively short-term cause of disability.
Compared to the average disability
income claimant who is paid for 6
years, and longer term conditions (such
as psychiatric diseases) which are paid
for over 10 years, the duration of an
average Aids claim is just 1 years.
South Africans are claiming for Aids-
related disabilities for short terms. This
is not due to the incorrect belief that
there is high death rate amongst Aids
claimants, but rather because better
treatment is allowing people to return
to work much sooner than in the past.
In 2012 the majority of claims that
ended saw the claimant recover
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.
Since 2008, a high level analysis we
NEIL PARKIN
Group Assurance Actuary
at Old Mutual Corporate
sentence to a chronic and manageable
Although stigma continues to surround
Aids, this is reducing, especially in the
insurance and employment context.
In the Group Assurance market, Aids
is treated like any other condition
with no specific exclusions. A greater
comfort with this principle may have
led to increased reporting. We are thus
classifying more claims correctly, and
employees are likely to be submitting
conducted among major companies
shows a 20% reduction in the mortality
rate. Simply put fewer people are
dying.
However, since Aids is not generally
recorded as a cause of death, it is
difficult to assess whether a reduction
in Aids deaths is driving this.
Comment has been made that Aids
is changing from a certain death
disease. The experience of our group
risk schemes bears witness to this
we have seen a period of increasing
deaths, and then the recent start of a
reversal.
There is much speculation about the
future of Aids, but the hope is that the
savings from fewer Aids deaths will
filter through into enhanced disability
benefits for all members.

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
With the value of on- and
off-road cycling equipment
increasing at an exponential rate,
and given the risks associated
with cycling in South Africa, it is
important to make sure that you
are getting the right insurance
package with sufficient cover.
Fred Hennings, cycling enthusiast
and managing director of
Cyclesure Insurance Consultants,
speaks of the importance
of insuring your bicycles,
accessories, and yourself.
COVER FEBRUARY 2014
February 2014.indd 47
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
increased by more than 15% over
the past year, with R189 000 being
the highest value of a bicycle on our
books.
Bicycle insurance is maxamised at R70
000 when added to typical personal
lines insurance policies. This has
resulted in brokers and short-term
insurers seeking specialised insurance,
as clients have become more trusting
with expensive cycling equipment.
Underwriting and claims staff in bicycle
mechanics have to be special trained
so that they understand their clients
needs. When a client claims for a
certain component, staff members
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
protability of personal lines in the
broker environment?
If you use intermediated insurers, you might
be very worried if you look at the last ve
years, where there has not been much prot,
and last two years have been particularly
bad with an overall loss for the sector. This
has been a gradual decline, juxtaposed with
the direct players being extremely protable
in the same space. So, the solution is either
If your actions inspire
others to dream more, learn
more, do more and become
more, you are a leader.
John Quincy Adams (1767-
1848); 6th US President
Coffee_Feb.indd 2
for the broker-based model to be more
expensive, or there needs to be more control
over the insurers processes and costs. The
challenge is that the insurer does not even
know who the client is, so has no levers to
pull when things go wrong. Insurers need
to take accountability for their results and,
to some extent, need to take control. Lots
of business running at a loss is neither a
sensible nor a sustainable business.
Which levers are you focusing on
to ensure protability in the motor
book?
We are making sure drivers drive better;
reducing claim frequency is rst prize for us.
This, in turn, limits premium increases. Then,
we are becoming proactive across the board
hailstorms are causing havoc, so we issue
weather warnings, with a half-hour notice it
is not a perfect science, but we feel it had an
impact in the most recent storm.
New technology means that every driver has
a unique ngerprint, and we can pick up a
change in driving habits and phone the driver
to check the vehicle has not been stolen.
We aim not just to deal with consequences,
but try to prevent it. We focus on having less
fraud on our books with a strong forensics
capability. Good clients end up paying for bad
clients, so fraudsters need to know they wont
get away with it. Our general focus is on the
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
and how are you engaging with
them to achieve this?
Brokers need to work closely with insurers,
and must take advantage of the economy
of scale that the insurers can bring. We
assist brokers to understand what risk
management is all about and help clients
understand their ability to manage their
own risk. Brokers must understand what the
heartbeat of the business is and to work
quickly.
How do you manage your own life
to juggle all the demands?
It is not easy to nd balance. I try to
maximise weekends we go away to our
family retreat. Over the last two years, we
have been building a company so there has
been extra demand. I take kids to school
three times a week, and ban the use of cell
phones in the car, so we have quality time
and I drive responsibly!
I cycled the 94.7 race, and will participate
in the Argus. I wear my pedometer, so, as a
Discovery Diamond client, I gain benets.
Within our Discovery Exco teams, it is not
cool not to watch your health. I use the
treadmill at home while I catch up on the
world, usually on CNN.
And South Africa?
I am hopeful about South Africa actually,
I am an optimist by personality. There are
problems all over South Africa is just better
at focusing on the negatives too often. In this
country, you can make a difference and live a
good life.
49
2014/02/05 8:00 AM
 Short-term
Road safety talk
shifts into higher gear
Since the Model T Ford rolled
off the production line in 1908
weve come to accept that
driving is dangerous. Motor
vehicle accidents are the highest
cause of death of young people
between the ages of 18 and 25,
and every 38 minutes a road
accident fatality occurs.
With these words the CEO of Discovery
Insure, Anton Ossip, opened the round
table discussion on road safety on
Wednesday 22 January. Ossip said that
mobility is a basic human need that is
vital for economic growth, so how can
we make our roads safer and better?
He quoted the late Nelson Mandela, It
only seems impossible until it is done.
Political analyst and PowerFM Power
Talk presenter Eusebius McKaiser
led the discussion between the four
panellists: Themba Baloyi, Executive
Director of Discovery Insure; Professor
Sebastian van As, trauma surgeon at
50
February 2014.indd 50
BY ANNETJIE VAN WYNEGAARD
the Red Cross and Chairperson of the Baloyi said compulsory insurance will
Global Road Safety Partnership South force the effective assessment of
Africa (GRSP); Gilberto Martin, Deputy vehicles risk prior to accepting cover,
Director General of the Department of and this will deal with approximately
Transport; and Howard Dembovsky, 740,000 vehicles that are either
National Chairman of the Justice unroadworthy, unlicensed or both.
Project South Africa.
Compulsory insurance is a powerful
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
together. McKaiser said the media place where it is located for effective
an irresponsible focus on road safety in monitoring and control. Zimbabwe
December. Martins agreed. We need has compulsory insurance on all their
vehicles.
a 365-day approach, he said. Road
safety is not just about Christmas and
Easter, there are more deaths in July.
The biggest reasons for accidents are
speeding, cornering, harsh breaking,
and driving at night, said Baloyi. The
most reckless driving takes place
between 10pm and 4am, and a largely
ignored factor to bad driving is eye
sight. He said that Discovery Insures
incentives and telematics technology
can help create safer roads for all. A
clear, collaborative approach is needed
from individuals, the private sector and
the public sector, he said.
COVER FEBRUARY 2014
2014/02/05 8:00 AM
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 Short-term
A large part of the population relies on
public transport of which 156 000 are
minibus taxis, and the people who are
most affected by road traffic accidents
are the poor. People think this is a
game, said Martin, I lose 43 people in
one crash.
Pedestrian compliance is a problem,
said Martin. Its all about people not
buckling up, kids standing on front
seats.
Dembovsky called for a change in
language about road safety. Accidents
are oopsies and unavoidable, he said,
Crashes are avoidable. He said there
is a general attitude among South
Africans that the government makes
enough money out of licences.
Baloyi said South Africans need to
develop a mindset so deeply focused
on getting better in everything we do,
including our driving.
There are approximately 53 million
people in South Africa, said Van As, 20
million of which are children. According
to the World Health Organisation
(WHO) trauma will be the number
one killer of children in 2020, and the
UN General Assembly has declared a
decade of action between 2011 and
52
February 2014.indd 52
AFRICA IS FULL
OF CHILDREN, WE
DRIVE AS IF THERE
ARE NO CHILDREN.
2020. 8000 children die in South
Africa each year from unintentional
injuries, and 89% of children injured
in car accidents were not wearing
seatbelts. In Europe the speed has
been reduced around schools.
Africa is full of children, said Van As,
We drive as if there are no children.
WHAT CAN BE DONE TO CHANGE
THE STATISTICS?
We are too nice, said Martin. Make
the alcohol level zero. 0,2 is too
debatable. Martin believes mobile
courts, name and shame campaigns,
and penalisation are necessary to curb
reckless driving.
Baloyi, however, said, Enforcement
has to be more inclusive and
focused on real behavioural change
interventions such as education and
the use of appropriate incentives.
Rewarding people for measurable
driving behaviour is ten times more
effective than seeking to punish
someone when they are caught.
He said there are two ways of
prevention, active and passive. Active
prevention is when the driver takes
action, for example obeying traffic
signs and buckling up a child, whereas
speed bumps and barriers in the road
to prevent illegal overtaking are passive
prevention. We need to focus on the
passive rather than the active, said
Baloyi.
COULD INCREASING TRAFFIC
FINES, ASSURING PROPER
ENFORCEMENT, TURN THE TIDE OF
TRAFFIC VIOLATIONS?
Its like putting a band aid on a
sceptic wound, said Baloyi. The
important starting point is to clean
the wound by creating programmes
that deal with behavioural aspects
of how we learn certain habits.
Enforcement should be designed to
be self perpetuating and that will
spread much quicker than forcing a
rigid structure on the society.
COVER FEBRUARY 2014
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
to fed action
What will 2014 hold for
investment management, an
industry which has had an
indisputably rocky ride since the
2008 global meltdown?
According to Johan van der Merwe,
Head of Sanlam Investments (SI), the
business of investing will continue to be
markedly affected by both the talk and
actions of the US Federal Reserve in
the New Year. The key to success for
investment managers lies in pursuing
opportunities to expand assets under
management and diversify revenue
streams. For us, the 2014 priority list
includes Africa, passive investing and
the South African retail market.
Van der Merwe says it will be difficult
for investment managers with an
emerging market bias to sidestep the
quantitative easing (QE) juggernaut.
We know that QE tapering is on the
table and have already witnessed the
ripple effect of its announcement on
emerging markets. But we are limited
with regard to the steps we can take to
mitigate the inevitable fallout.
Sanlam Investments the investment
division of the listed Sanlam Group
which manages almost R700 billion
54
February 2014.indd 54
in assets is aware of the correlation
between investment managers profits
and market performance and has
identified various opportunities to
soften the blow as global markets
transition from a period of fed speak
to one of fed action.
First and foremost it is vital
for investment management
companies to have an investment
philosophy that they stick to, says
Van der Merwe. This philosophy
is their anchor during periods of
market turmoil. SI applies a value
investment philosophy regardless of
what stage of the market cycle they
are in.
From an operational perspective, Van
der Merwe singles out three trends that
South African investment managers
can leverage over the next few years.
The first is that South Africa is behind
the international curve where passive
investments are concerned. Passive
investment will continue to take off
locally, especially in a low income and
return environment where the cost of
managing funds becomes an issue,
he says. This belief is borne out by SIs
decision to acquire 100% of exchange
traded fund provider Satrix in May 2012
and to launch a range of new index
funds in the latter part of 2013 and
early 2014.
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.
The third and perhaps most lucrative
trend is that Africa is once again top
of mind for international investors.
The Sanlam Group has made moving
into Africa part of its strategy and
through Sanlam Emerging Markets
has direct business exposure to 13
African countries (excluding South
Africa). The group has enjoyed great
success through joint ventures and
partnerships with established financial
services players in each of these
markets.
From an investment perspective
we have also leveraged the African
reawakening via a range of Pan
African funds, says Van der Merwe.
The groups Pan African Equity Fund
and Pan African Property Fund have
been well received, with a Pan African
Credit Fund set for launch in the
coming year.
We have been investing in African
credit over the last four years off
our own balance sheet and have a
very good track record, he says.
This experience, coupled with our
13-country African footprint, makes
for a powerful argument when
approaching investors to support our
Pan African funds.
COVER FEBRUARY 2014
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
Most Asian countries, like China,
are pursuing a strategy of weaker
currencies, lower import and lower
growth, as reducing the shadow
economy takes centre stage in Asia.
American and European growth from
2009 to 2013 was kept higher than
business cycle would dictate by Asias
over-investment. China did almost
US$600 billion of fiscal expansion in
2008 those investments came back
STEEN JAKOBSEN
Chief Investment
Officer at Saxo Bank,
writes about trends and
potential upsets in 2014.

56 COVER FEBRUARY 2014

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

 Financial Planning
to the US and Europe through rising
export orders. To normalise investment
to GDP ratios in Asia could cause lower
inflation and lower export volume for
the high flying export companies of the
world.
CHART 3: HSBC Global Research, 6
December 2013 GDP growth and
the investment-to-GDP ratio: good
growth is linear correlation indicating
investment return is positive and
creating growth. Bad growth is rising
investment to GDP ratio while growth
trails.
The widening gap means growth
is falling due to falling investment
returns. The easy part of Asian growth
is done. Japan grew approximately 10%
per annum in the 1960s and 70s, 4 to
5% in the 1970s and 80s, and close to
nothing in the 90s and 2000s.
COVER FEBRUARY 2014
February 2014.indd 57
This change is nothing new. The trend
has been in place for a few years, and
this is in my opinion the reason for
slower growth in the world and the
deflation risk. HSBC here shows how
growth and investment to GDP have
changed pre-crisis versus post-crisis.
THE WIDENING GAP MEANS
GROWTH IS FALLING DUE TO
FALLING INVESTMENT RETURNS.
CHART 4: In China and India growth
and rising investment are falling.
China and India will provide less input
to world growth and a country like
Indonesia is having a tough outlook
with falling growth and investments.
No wonder IDR has been one of the
weakest currencies in the last six
months.
In 2012 world growth was 4,0%: 36%
of this came from China directly, 24%
came from the rest of Asia.
DEFLATION
Barclays have estimated the chances
of European deflation as a 50% using
inflation linked products, but I think the
next three to six month will push more
and more European nations close to
zero inflation. Greece and Ireland are
already in deflation, Spain, Sweden and
Denmark are very close, and for the
investors fearing inflation in Germany
on the back of the so called labour
market reforms, the surprising drop
from 1,4% to 1,2% must have been a
positive surprise.
Producer Prices continues to trend
lower both in China and Germany
two or the world most impressive
exporters.
POSITIVE SURPRISE ECB GOES TO
FULL QE
If Im right the European Central Bank
will issue full Quantitative Easing. If Im
wrong market will return 10 to 20%
based on recovery.
There is no doubt that the ECB and to
some extend the German government
helped the market when it has been
needed, but is it safe to assume it will
help again? Jrg Asmussen is now a
junior labour market minister in the
new German government.
NEGATIVE SURPRISE EUROPEAN
PARLIAMENTARY ELECTION IN
MAY
The European election normally makes
investors and voters eyes glaze over,
but this could be different. Not only is
the Far Right and Far Left gaining in
most opinion polls in general anti-EU
mood, but now they have a common
theme: welfare tourism.
Government and pro EU
parliamentarians are hiding as the
expansion of Europe includes free
labour market movement for Bulgarians
and Romanians, who go to northern
Europe seeking job, failing and then
claiming benefits. This upsets the
labour unions, the far left and the far
right.
57
2014/02/05 8:09 AM
 Financial Planning
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.
With the renewed emphasis on
retirement this year, advisors can urge
clients to do the following:
1. Set a retirement goal
In order to begin saving for retirement,
you need to clearly quantify your goal.
Calculate how much money needs to
58
February 2014.indd 58
resolutions for
comfortable
retirement
be set aside for old age. Work towards
a minimum replacement of 60% of
your final salary, or around 10 times
your current annual salary.
2. The lower the fees, the greater
the retirement pot
Watch out for high fees. You should
always ensure that you are paying low
fees, certainly no more than 1,5% and
preferably below 1%. Why? If you can
save 1% in fees, your final pension
amount would increase by about 30%.
A recent National Treasury study found
that if individuals could reduce their
fees from 2,5% to 0,5% they would be
able to double their final pension.
3. High equity investment strategy
Have an age appropriate investment
strategy. Invest 75% in growth assets,
such as listed shares and property, to
reach your goal and generate a return
of between 5% and 6% per year above
inflation. You can then switch to a
more conservative portfolio five years
before retirement.
4. Implement a strict savings regime
You should be saving at least 15% of
your monthly salary for 40 years to
build a sufficient retirement pot. Avoid
the temptation to defer savings or cash
when changing jobs. Save as much as
you can for as long as you can.
5. Compound interest is your best
friend
Stay the course. Ignore short-term stock
market volatility and the distraction
of market commentators that often
encourage investors to switch funds
or change their savings strategy based
upon recent events. Your goal is to
maximise the size of your investment
at retirement and not to worry about
short-term stock market volatility, which
is unpredictable and unavoidable.
COVER FEBRUARY 2014
2014/02/05 8:09 AM

Investors looking for
real returns pile into
multi asset funds
Despite South African equities
having appreciated by around
160% since the end of the first
quarter of 2009 thats about
22% a year retail investors
dont seem too concerned
about when the party might
end.
That being said, for long-term
investors, real growth is important
more so than worrying about
shorter term volatility. This means
that exposure to equities is desired.
At present, the retail investors tend
to opt for balanced funds, a sensible
strategy given economic and market
conditions, and the need for long term
real returns.
According to statistics from the
Association for Savings and Investment
South Africa (Asisa) for collective
investment schemes, the SA multi-
asset category of unit trusts enjoyed
inflows of R35 billion in the third
quarter of this year and R110 billion in
the 12 months to end September.
This made it the most popular
category with investors in multi-asset
funds now accounting for around 44%
of the industrys total assets of R1,3
trillion.
Multi-asset, or balanced funds, typically
offer lower volatility than pure equity
funds and diversification benefits, by
investing across all asset classes, locally
and abroad. Diversification enhances
efficiency, which means higher returns
per unit of risk or the expectation of
protection against significant capital
losses in volatile markets.
While strong past investment
performance has played its role in
attracting investors to balanced funds,
they have also been aggressively
promoted by some of the larger, better
known fund managers making
investors more familiar with names
and products.
COVER FEBRUARY 2014
February 2014.indd 59
ARNOLD
Married with children.
Main breadwinner.
Loves his job.
MEYER COETZEE
Head of Retail at Prescient Investment
Management, gives insight into risk
management for retail investors.
Another factor driving money to
balanced funds is that, under the
Financial Advisory and Intermediary
Services (FAIS) Act, they represent
a safer bet and less risk for advisers
selecting funds for their clients.
With 1,025 collective investment
schemes to choose from, it is no
surprise that the average retail investor
is looking for help.
The good news is that the road to
financial solace is not as complex as it
seems.
Appoint a qualified adviser to identify
needs and determine risk and return
objectives as part of a holistic financial
plan, and then pick a reputable asset
manager to manage your assets.
For investors concerned about the
relatively high level of share prices,
risk can be managed by incorporating
downside protection in portfolios.
By avoiding large draw-downs and
sharing in the upside when markets
run, wealth is created by compounding
positive returns over time.
Similarly, where offshore investments
are concerned, a major risk lies in
the Rand strengthening against major
foreign currencies, as seen in the years
following the end of 2001.
During periods of Rand strength
offshore investments lose value in
Rand terms, all other things being
equal. That makes the decision to
take money offshore at the current
exchange rate more difficult, despite
the well documented benefits of
diversification and attractive valuations
offshore.
Foreign asset exposure and currency
risk can be managed using derivatives.
Prescients investors are smart and
appreciate the benefits of participating in
the markets, while enjoying the peace of
mind that risk management brings.
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.
But no one can predict market
movements. Markets may look
expensive, but that does not mean the
next big movement will be down. Even
if there is a pullback, the long-term
investor with a well-motivated strategy
usually does better in the market than
out.
When the market moves higher,
you want to be invested in it and
positioned to take advantage early in
the upturn. Get in late, and you miss
the big wealth-enhancing movements.
In these circumstances, the profit-taker
who headed for the exits misses out.
not to liquidate totally into cash an
asset class subject to severe attack by
taxation and inflation.
Clients who rebalance their holdings
maintain significant equity allocations
while seeking income-enhancing
opportunities elsewhere in the market.
One option is corporate bonds linked
to the Jibar rate as the rate is reset
every quarter, while capital is reset to
100 at the same time. Should interest
rates move higher, the investor is not
penalised by a long lag before the
uptick is reflected a disadvantage
faced by fixed deposits and one-year
negotiable certificates of deposit.
CRAIG PHEIFFER
Head of Private Client Asset
Management at Wealth & Investment
Management, Absa, alerts investors
against cashing out too soon.
Another option is inflation-linked
bonds. Some take a positive long-
term view on preference shares (a
poor performer recently). However,
they may now be near the bottom and
would benefit from any interest rate
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


Does size matter
and why?
The case for boutique asset managers
With a rise in the number of
boutique managers, globally
and domestically, investors
are faced with the age-old
question, does size really
matter? Research from
around the world suggests
that smaller, boutique-type
managers outperform their
larger counterparts by anything
between 1% and 2,5%,
depending on the particular
geographical region studied.
Studies have shown that two
managers producing returns of 10%
and 12,5% per annum respectively
will result in a 56,7% differential in
return over 20 years.
When this size advantage is
combined with the value investment
style, evidence suggests that the
performance advantage becomes
even more significant, and a
compelling case can be made for
boutique managers, favouring a
value approach to investing.
COVER FEBRUARY 2014
February 2014.indd 61
...THE
TERMINATED
No one expected the wave
of retrenchments.
MARK VAN DER WALT
Business Development at Cannon
Asset Managers, finds that size
really does matter, and looks at how
investors can take advantage of this.
BOUTIQUE MANAGERS ARE
ASSET MANAGERS, NOT ASSET
GATHERERS
Boutique managers are typically
owner-managed with committed
investment professionals having skin
in the game. Control of such firms
generally lies in the hands of the
investment professionals, which helps
ensure the firms investment DNA is
protected from outside influence and
dilution. Such firms also have small
investment teams with investment
professionals holding a genuine
passion and belief in the investment
philosophy.
In most cases, these managers are
willing to (and do) limit growth in
assets, preferring to concentrate on
alpha generation rather than asset
gathering. Boutique managers tend
to be asset managers as opposed
to asset gatherers. Portfolios also
display some common characteristics.
Typically, they are more concentrated
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.

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

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
taking steps to change the context
of retirement funding, a cautious
approach is required. Consultation with
various industry bodies will have to
take place before a final strategy plan
is implemented by government.
National Treasurys retirement reform
is a step in the right direction as more
sectors of the population need to be
brought into the realm of a compulsory
saving scheme. Caution needs to be
applied in implementing the reform
framework, with an emphasis being
placed on governance, administration,
education of members and structural
transparency.
Major lessons can be learned from
examining funds preservation
experienced in other markets. Two
major issues have been people
withdrawing funds before reaching a
defined age, and people who move
jobs regularly, losing track of their small
pots of savings.
The state imposed retirement fund
introduces measures to ensure ease
of transfer of small pots of retirement
savings, thereby allowing easier
66
February 2014.indd 66
...UP TO 95% COULD FIND
Themselves relying on sociAl
grAnTs As They Age And
Their funds Are depleTed.
accumulation of funds in one
place. The Bill needs to address
issues that include:
The status of accrued rights not
being impacted on and available
to members leaving their current
employer;
Addressing the significant
administrative requirements that
could arise as a result of this
approach;
The impact on final savings
when withdrawing savings in
cash prior to retirement;
The development of a scheme
that discourages withdrawals.
Though there may be issues
around pension reform that
have to be debated before they
are formally acted upon, there
is no doubt that some form of
retirement reform that encourages
preservation is a must for our
nation of non-savers. Failure to
implement this could be costly for
the nation as a whole.
COVER FEBRUARY 2014
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
manager must make into a risk
influencer, is a critical evolution.
This has become a key resource
in adding strategic value to the
organisation.
Previously, it was often consigned to
the narrow fields of hazard and health
and safety factors, associated with
the risk transfer industry of insurance.
The alternative view, however, is that
risk management should be closely
associated with the strategic resource
allocation and decision-making
processes of organisations.
In many cases, risks are not single
events they challenge accepted
business models and the risk
solutions should include new business
processes and alternative risk transfer
methodologies. Marshs 10th paper
on Excellence in Risk Management:
Delivering Strategic Value Through Risk
68
February 2014.indd 68
IN MANY CASES,
RISKS ARE NOT
SINGLE EVENTS...
Management, also provides the tools
to evaluate multiple risk scenarios,
using data, analytics and portfolio risk
analysis.
With risk exposures needing to be
evaluated against risk appetite and
tolerance, it needs to be kept in mind
that the sum of the strategic risks in
any organisation will often exceed its
total financial risk bearing capacity. VOLKER VON WIDDERN
MD of Marsh Risk Consulting, discusses
It is thus important to align the how the risk manager in an organisation
organisations strategic objectives, has evolved into a risk influencer. With
its strategic risk exposures and its more complexity in risk, there is a calling
medium- to long-term financial for innovation and creative thinking.
capacity, in order for value-adding
and business development goals to be
sustained in the medium term.
COVER FEBRUARY 2014
2014/02/05 11:20 AM
 Collapsing buildings give
heads up to insurance industry
Last year the collapse of a
building under construction in
Tongaat, KZN, and another in
Lagos, Nigeria, highlighted the
importance of consistent and
informed risk management and
legal compliance on construction
sites. The collapsed building in
Lagos, Nigeria left 25 people
dead. Two people died and a
number were injured in Tongaat.
Risk management on a construction
site are that much greater than in a
static building. The structure is evolving
on a daily basis as the building is
manufactured with the risk increasing
incrementally as the building moves
towards completion.
Contractors must be aware of the
potential ramifications of poor risk
management on site and non-
compliance with legislation, it can
compromise insurance cover and
financial protection.
COVER FEBRUARY 2014
February 2014.indd 69
ZURIEL NAIKER
Divisional Director, Etana
Construction & Engineering
Every contractors all risk policy has a
general condition called the prevention
of loss clause. The clause is usually
found at the beginning of the policy
wording, before the specific cover
(contractors all risk, liability etc.) is
outlined. This clause outlines that
the insured is required to comply
and adhere to the (active) laws and
regulations which are material to
the risk, regardless of when they
were enacted. Even if a law was
introduced after the commencement
of the contract, the insured company
or person must make sure that they
comply.
The risk of not complying is that the
insurer may be entitled to reject a
claim in its entirety if the insured has
failed to adhere to an applicable by-
law, law or regulation and it is material
to the loss. The purpose of insurance is
to provide financial protection. Insurers
are in business to pay claims and
protect people against financial ruin.
Brokers have a key role to play in
protecting their clients from vulnerability
and are a valuable source of information.
Contractors need to check current
regulations with experts regarding
municipal by laws or construction
regulations. The Master Builders
Association (see contact details below)
provides training and updates to keep
abreast of this evolving environment.
With South African insurers increasing
involvement in other African insurance
markets, there is also a strong need
to understand and appreciate the
regulatory framework within those
countries and ensure that any potential
gaps are considered during underwriting.
Doug Michell is Construction Health and
Safety manager for the Master Builders
Association (MBA) north. He can be
contacted on dougm@mbanorth.co.za,
011 805 6611.
69
2014/02/05 8:12 AM
 Risk Management
Manage risk with healthier
and safer supply chains
Global organisations recognise
that supply chain disruptions
can affect a companys bottom
line and financial performance,
according to a report conducted
by the Massachusetts Institute of
Technology (MIT) and PwC.
Despite this stark reality, 60% of
companies pay marginal attention
to risk reduction processes. These
companies are categorised as having
immature risk processes. They mitigate
risk by either increasing capacity or
strategically positioning additional
inventory.
The survey shows that most of these
companies focus either on maximising
profit, minimising costs or maintaining
service levels. Stressed supply chains
coping with cost, competitor and
quality challenges are vulnerable to
disruptions from natural or manmade
forces. Supply chain disruptions can
damage profitability, shareholder value
and even reputation.
ONLY 40% OF ORGANISATIONS
HAVE MATURE PROCESSES
THEY INVEST IN DEVELOPING
RISK REDUCTION CAPABILITIES.
The Supply Chain Risk Management
Survey analyses the supply chain
operations and risk management
approaches of large companies and
looks at their operations and financial
performance in the wake of supply
chain disruptions. A total of 209 global
companies completed the survey. The
study proposes a framework and a
set of principles to assist organisations
to mitigate these risks. Global
organisations are exposed to high-risk
scenarios ranging from controllable
risks raw material price fluctuations,
70
February 2014.indd 70
currency fluctuation, market changes
and volatility in the fuel price to
uncontrollable natural disasters.
SUPPLY CHAIN
OPERATIONS ARE MOST
SENSITIVE TO RELIANCE
ON SKILL-SET AND
EXPERTISE (31%)...
Only 40% of organisations have mature
processes they invest in developing
risk reduction capabilities.
The survey shows that companies
that invest in supply chain flexibility
are more resilient to disruption than
mature companies that dont.
An organisations capability maturity
was determined by a supply chain and
risk management capability maturity
framework. This framework assesses
how companies apply the most
effective enablers of supply chain risk
reduction flexibility, risk governance,
integration, information sharing, data
models and analytics and rationalisation
and their associated processes. The
model depicts where a company is
positioned relative to its competition
and industry.
In South Africa, recent research by PwC
indicates that fears about supply chain
disruption among CEOs have grown with
a third expressing concern about this
risk. South African CEOs are reluctant
to abandon cost-cutting initiatives until
the economy is stable. Last year cost
reduction initiatives have remained the
most prominent restructuring activity in
corporate South Africa.
Africa has exciting investment and
trade opportunities, but undeveloped
logistics infrastructure and under-
capacitated utility providers create risks
for reliable and cost effective supply
chains. For South African businesses
JONATHAN CAWOOD
Strategy & Operations Leader
for PwC Southern Africa
to benefit from growth in Africa, they
must beneficiate and distribute raw
materials and finished products across
a broader and complex supply chain
network.
They must know where to play in
their industry value chains, consider
new business processes and operating
models, form new partnerships,
leverage from existing ones, and
embrace digital platforms to build
supplier and customer channels. They
must consider legislation and rules of
operating across multiple jurisdictions.
Over the past three years supply
chain networks have increased,
dependencies between entities and
functions have shifted, the speed
of change has accelerated and the
level of transparency has decreased.
Developing a product and getting it to
market requires more complex supply
chains needing a higher degree of
coordination.
The risks to global supply chains vary,
with organisations citing fluctuations
in raw material prices (53%), in
currency (47%) and market changes
(41%) as the top three risks. Supply
chain operations are most sensitive
to reliance on skill-set and expertise
(31%), price of commodities (29%)
and energy and oil (28%). 82% of
respondents said they had a business
continuity plan ready to reduce the
exposure of their supply chain to
potential disruptions or to mitigate the
impact.
Flexibility is crucial to a companys
ability to adapt to change. Managing
supply chain risk is critical for all parts
of the business product, design,
development, operations, people and
customers. Healthier and safer supply
chains are vital for business continuity
now and will pay off as a strategic
competitive advantage when the
economy recovers.
COVER FEBRUARY 2014
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
protection insurance for SMMEs is
that business owners have access to
legal advice, support and infrastructure
to ensure compliance on all levels,
without breaking the bank. Sharon
Paterson, CEO of Inifinit Insurance also
argues that, It also frees business
owners to focus on actual business
activities, without having to waste their
time trying to resolve legal problems
and challenges when it could be better
spent on production and revenue
generating opportunities.
The small business landscape is,
however, not entirely bleak. Select SA
legal insurance underwriters are playing
a pivotal role in putting affordable legal
services within the reach of all SMME
business owners in South African.

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
heard about POPI?
The imminent Protection of
Personal Information (POPI)
bill means retailers must
be prepared to deal with
customers questions about
personal information that they
are collecting, why they are
collecting it and how they intend
to protect it against abuse.
POPI provides a wide definition
because this includes diverse forms
of data addresses, ID numbers, cell
phone numbers, biometrics and even
personal views on certain issues.
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
information that retailers are prohibited
from collecting, but as a rule of thumb,
businesses should only collect what
is necessary for them to achieve a
specific purpose which should be
communicated to customers.
One example is the use of ID
documents to verify a customers
identity. The retailer has to justify why
they need to collect the information.
They should only use it for the original
purpose. For any other purpose, they
will need to notify the customer.
Consent does not always have to be
given in written format. It is important
to bear in mind what the expectation
of the individual would be what can
the retailer use the information for?
Similarly, if a customer has signed up
for a loyalty programme, the retailer
is entitled to track their purchases
and use it to promote products in the
future based on buying behaviour
provided that they received consent
to do so when the customer signed
up or notified the customer that the
information would be used for that
purpose.
COVER FEBRUARY 2014
February 2014.indd 73
JANA VAN ZYL
Partner at Dommisse Attorneys
Many retailers communicate with card slips. Retailers would have to
their customers via social media retrain their employees in preparation
platforms like Facebook. The fact that for POPI about the importance of
information has been made publically safeguarding personal information.
available does not mean that POPI
wont apply. If the company wishes to POPI also has implications for future
HR activities. These will for example
collect data via their Facebook page,
they would still be responsible for include revising current policies and
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
still have to limit their use, disclosure the Act as a positive introduction to
and retention of that information in their systems.
line with the purpose for which they
Retailers should liaise with an attorney
collected it.
as a first step to becoming compliant
Security is a concern for retailers who with the Act.
frequently receive and retain sensitive
hard copy information, such as credit
Remember requirements of
POPI with CLAAP:
Consent: Organisations may only collect, use and
disclose personal information with the knowledge
and consent of the individual. (In some instances
organisations will be able to use personal
information even though they have not received
the express consent, but mostly organisations
will still need to notify the individual that the
information has been collected.
Limited use: The collection of personal
information is limited to what is necessary for the
identified purposes and must be collected by fair
and lawful means.
Accountability: Retailers are accountable for
protecting the personal information under
their control and must ensure that adequate
safeguards are in place.
Access: An individual has the right to access his/
her personal information, subject to legislated
exceptions, and has the right to seek correction
of information or the withdrawal of permission.
Purpose: The purposes for the collection of
personal information must be identified prior to
or during the collection.
73
2014/02/05 8:16 AM
 Legal
Divorce and
pension interest
Recent Adjudicator decisions
have highlighted the importance
of ensuring that divorce
settlement agreements and
accompanying orders are drafted
strictly in line with the Pension
Funds Act 24 of 1956, read
together with the Divorce Act 70
of 1979.
Section 37A of the Pension Funds Act
protects a members pension benefits
from creditors, and limits a funds
ability to deduct amounts from a
members pension interest. Deductions
are only allowed in terms of the
Pension Funds Act, the Income Tax Act
and the Maintenance Act, subject to
the exceptions set out in section 37D.
Section 37D(1)(d)(i) states that a
registered fund may deduct any
amount assigned to a non-member
spouse in terms of a divorce order
granted in terms of section 7(8)(a) of
the Divorce Act.
When parties divorce the court
may make an order (i) directing
the applicable fund to make an
74
February 2014.indd 74
SecTioN 37A of The
PeNSioN fuNdS AcT
PROTECTS A MEMBERS
PeNSioN beNefiTS
from crediTorS, ANd
limiTS A fuNdS AbiliTy
To deducT AmouNTS
FROM A MEMBERS
PeNSioN iNTereST.
endorsement in its records about the
non-member spouses entitlement to a
portion of a pension interest and (ii) to
pay such portion to the non-member
spouse in accordance with his or her
choice. All of this must be claimed for
in the summons (and accompanying
settlement agreement, if applicable).
Section 7(8) of the Divorce Act, read
together with section 37D(4)(a) of the
Pension Funds Act, sets out certain
conditions with which a divorce order
must comply for the fund concerned to
give effect to the claim.
THE ORDER MUST:
Provide for the non-member spouses
entitlement to a pension interest as
defined in the Divorce Act;
Set out a percentage (%) of the
members pension interest or a
specific amount;
Name/identify the relevant fund
which has to deduct the pension
interest; and
The fund must be ordered to endorse
its records and make payment of the
pension interest.
In the case of Areias vs Momentum
Retirement Annuity Fund and
another [2013] JOL 30007 (PFA) the
complainant held a divorce order which
entitled her to 50% of her former
LIZE DE LA HARPE
Legal Advisor
Glacier by Sanlam
husbands pension interest. However,
the order did not name the fund or
refer to pension interest as defined
in the Divorce Act. The settlement
agreement only referred to policies
which shall continue to be paid by
the member until maturity date when
the policies will be paid out in equal
shares. The complaint was therefore
dismissed.
In the recent case of Bowyer vs
Personal Portfolio Preservation Fund
the Adjudicator stated that the fund
should not have complied with the
divorce order which did not comply
with the requirements. Adjudicators
insist on strict compliance with the
requirements before giving effect to a
divorce order in which pension interest
or parts thereof are allocated to a non-
member spouse.
IN SUMMARY
Divorce orders not meeting the above
conditions are not in compliance with
the Divorce Act read together with the
Pension Funds Act, and are therefore
not enforceable against the fund. The
fund is strictly bound by the Pension
Funds Act and has no discretion in
this regard. Funds and administrators
must act with caution when receiving
requests for payment in terms of a
divorce order and must ensure that
payments are always made in terms of
a valid court order.
If your divorce order is found to be
unenforceable against the fund in
question you can still claim against
your ex-spouse, either by going back
to court to sue your ex-spouse for
the value of the pension interest you
are entitled to, or by approaching the
court that issued the divorce order and
request an amendment in order to
bring it in line with the provisions of
the Divorce Act and the Pension Funds
Act. Both options involve further legal
costs. Even if your ex-spouse confirms
that he/she has no problem with the
deduction of the pension interest
awarded to you, it wont affect the
unenforceability of the order against
the fund.
COVER FEBRUARY 2014
2014/02/05 11:30 AM
 Inseta
INSETA hosts joint
workshops for burial
society members
INSETA has prioritised the
transfer of critical skills to Burial
Society members. INSETAs
purpose is to develop scarce
skills in the insurance sector,
and by so doing, to support the
countrys transformation.
Burial Societies as mutuals are unique
institutions. Members come from
different backgrounds and are often
required to perform highly skilled
functions like risk management,
governance, investment management
and bookkeeping. The training that was
provided at the October and November
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.
INSETA will partner with them to ensure
that the monies entrusted by consumers
to burial societies are well managed.
The courses The joint training sessions were
organised by INSETA, Imsimbi Training,
covered and Creative Minds. The courses
were: basic covered were: basic financial skills,
governance, secretarial skills and basic
financial skills, computer literacy.
governance, The basic financial skills course for
secretarial Burial Society co-operatives was held
at Imsimbi Training in October and
skills and basic November 2013. Imsimbi Training offers
computer personal effectiveness and leadership
development training courses throughout
literacy. South Africa. The trainees enjoyed the
learning process and said that they felt
comfortable enough to participate and
interact in the course. The majority of
candidates who attended the workshop
COVER FEBRUARY 2014
February 2014.indd 75
rated it as excellent.
During the session, some of the
financial management weaknesses in
Burial Societies were discussed. The
course focused on balance sheets,
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
framework. One of the candidates
commented, I am very pleased to
have been a part of this training. I
have learnt a lot and now I will be
able to help our members by teaching
them about this course. I thank our
facilitator, Mr Siya Ntutela.
On the second day of training,
Creative Minds trained the candidates
in basic computer literacy. The
workshop covered the fundamentals of
computers and how to use Windows.
The candidates thoroughly enjoyed
the course and expressed a desire to
receive further training to take them
beyond the introductory level one
course.
Most of the candidates excelled at
their training. Creative Minds expressed
their gratitude to the INSETA: We
would like to thank the INSETA for the
opportunity of providing the training.
We appreciate the positive spirit in
which this course was organised.
Zulu Ratswana, the general secretary
of the Burial Society of South Africa
(BUSOSA), addressed the group of
Burial Society members after their
session. He said that different Burial
Societies should come together and use
their unity as a bargaining tool. He also
discussed some of the programmes
that are being implemented by
BUSOSA, such as consumer education
for Burial Societies.
INSETA plans to host more training
workshops for Burial Society members
in the Eastern Cape and Western Cape.
75
2014/02/05 11:31 AM
 Pension Funds Adjudicator
Manager belonged
to incorrect fund
A widow has failed to get
a higher death benefit after
claiming her husband had been
registered with an incorrect fund.
Mrs M of Johannesburg complained to
the Pension Funds Adjudicator that,
though her husband was a manager at
a security company, he was registered
with a fund for security guards.
The deceased had been employed
by Fidelity Security Services (Pty)
Ltd (second respondent) and was a
member of the Private Security Sector
Provident Fund (first respondent).
76
February 2014.indd 76
The OPFA conducted an investigation
In December 2012, the first respondent
distributed the death benefit of R81
146,04 to the complainant and her two
children as the identified dependants of
the deceased.
She complained to the Office of the
Pension Funds Adjudicator (OPFA)
that the deceased ought not to
have been registered with the first
respondent, but with a fund in which
managers participated. She submitted
that the death benefits from the first
respondent were lower.
The second respondent submitted
that the deceased was contributing to
the first respondent where he was a
registered member, even though he
was a manager, and a death benefit
was duly paid by the first respondent.
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
join any fund in which the employer
participates; he could have decided not
to join any fund. Why the deceased
registered with the first respondent
instead of these two other funds is
speculation. In the event, this Tribunal
finds that the complainant has failed to
prove that she is entitled to the relief
that she seeks, she said in dismissing
the complaint.
COVER FEBRUARY 2014
2014/02/05 8:17 AM
 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
Association of Southern Africa
(FIA) would like to congratulate
the countrys risk and financial
advisors on a job well done.
As 2014 begins to shade the horizon
we celebrate an industry that is built
on professional advisors who provide
advice per the exacting standards
required by one of the best-regulated
financial services environments
anywhere in the world.
The 2004 implementation of the
Financial Advisory and Intermediary
Services Act (FAIS) along with its
accompanying regulations contributed
to a steep change in financial advice-
giving. The Act, which sets out clear
guidelines on how risk and financial
advisors should interact with their
clients, has already delivered positive
outcomes for consumers, as seen
by the on-going improvement in
the standard of advice-giving by our
members.
Both the regulators annual report and
feedback from the industrys consumer
protection schemes confirm that we
are stamping out poor advice and
reducing the number of questionable
financial products offered through the
intermediated distribution channel.
The impact of pro-consumer
legislation on the financial services
consumer can be assessed by studying
the complaints statistics published by
South Africas consumer protection
schemes.
From a financial intermediary
perspective the best place to start
is the 2012/3 FAIS Ombud Annual
Report. The FAIS Ombud was
established in terms of the FAIS Act
to facilitate complaints by consumers
against intermediaries and can award
compensation of up to R800 000.
The FAIS Ombud received 9 949 new
complaints in the period under review.
Of the 9 033 complaints finalised
during 2013, 4 550 (50,4%) were
COVER FEBRUARY 2014
February 2014.indd 77
referred to financial institutions or
other ombudsman schemes, 3 096
(34,3%) were dismissed and 1 354
(15%) were settled. There were only
33 determinations against financial
services providers last year.
Advisors play an important role in
assisting consumers in choosing and
interacting with their private medical
schemes too. It is the medical scheme
advisor or healthcare broker who
has to guide South Africas consuming
public on the best scheme and benefit
option combination for their needs.
And theyre doing a great job.
The latest Council for Medical
Schemes (CMA) annual report reveals
that there are 3,8 million main
medical scheme members (and 4,8
million dependents) belonging to 92
private medical schemes. It also shows
that only one out of 4 651 complaints JUSTUS VAN PLETZEN
received by the Council in the 2012/13 CEO of the Financial Services
year related to incorrect advice by Association of Southern Africa (FIA)
broker.
These pro-consumer statistics repeat
at the ombudsman schemes that
hear complaints against South Africas with appropriate service when they
short-term and life insurers. There purchase investments, life assurance
were only 9 123 consumer complaints or short term insurance. It aims to
to the Ombudsman for Short-Term entrench a culture of fair treatment
Insurance (OSTI) over the latest of consumers at every company
year, despite millions of private and involved in the design, provision
commercial policyholders. The OSTI and distribution of an insurance or
was set up to hear complaints against investment product.
insurance companies.
TCF requires that both the product
The Association for Savings and provider (the bank, insurer or
Investments (ASISA) notes that 86% investment house you transact with)
of South Africas 5,1 million new and advisor (financial planner or
recurring premium policies invested in insurance broker) deliver a product
by the public in the six months until and service that meets reasonable
30 June 2013 were introduced either expectations.
by independent financial advisors or
so-called tied agents. Only 9 592
complaints were brought to the
Ombudsman for Long-Term Insurance.
The Financial Services Board (FSB)
is introducing six treating customers
fairly (TCF) principles that will be
enshrined in financial regulation by
2016. TCF will ensure that consumers
are sold an appropriate product
77
2014/02/05 8:17 AM
 Africa Rising
South African
Economy in review
STRENGTHS
South Africa leads the continent
in industrial output and mineral
production, and generates a large
portion of the continents electricity.
South Africa has the largest economy
in Africa, accounting for 24% of the
continents GDP in terms of PPP, and
is ranked as an upper-middle income
economy by the World Bank.
The country has abundant natural
resources, well developed financial,
legal and transport sectors, a stock
exchange ranked among the top 20 in
the world, and a modern infrastructure
supporting efficient distribution of
goods throughout southern African.
WEAKNESSES
South Africa suffers from heavy
regulation, increasing costs for
corporates with rising wages, poverty,
inequalities, and social risk mixed with
high unemployment and a shortage of
qualified labour.
78
February 2014.indd 78
REPORT PRODUCED BY COFACE, THE INTERNATIONAL CREDIT INSURER
ECONOMIC GROWTH
The nominal GDP at market prices
during the second quarter of 2013 was
R836 billion, which was R23 billion
more than in the first quarter of 2013.
Real gross domestic product at market
prices increased by three percent
quarter-on-quarter, seasonally adjusted
and annualised.
The largest contributions to the
quarter-on-quarter growth were
the manufacturing industry at 1,7
percentage points based on growth
of 11,5%; finance, real estate and
business services contributed 0,8 of a
percentage point based on growth of
3,5%; and wholesale, retail and motor
trades, catering and accommodation
industry contributed 0,4 of a
percentage point based on growth of
3,2%.
2014 will probably be similar to 2012.
Many economies remain in unchartered
territory and obstacles like high debt
levels and weak confidence could cause
setbacks. In Europe fiscal austerity will
impede activity. In the US, much will
depend on the ability of politicians to
navigate a path to fiscal sustainability.
China will move towards a stronger
consumer orientation, with implications
on commodity prices. Global
economic conditions were difficult,
while infrastructure constraints,
policy uncertainty, labour and social
unrest contributed to limited local
private sector investment and job
creation. Broad-based growth was
slow. Economic growth is likely to
be below 3%. The main impetus
will be investment in public sector
infrastructure. Exports will remain
under pressure.
ECONOMY BY SECTOR
Statistics South Africa surveys
10 industries: seven recorded
improvement in growth compared
to the first quarter. Manufacturing
contributed most to second quarter
growth, with 1,7 percentage points.
COVER FEBRUARY 2014
2014/02/05 8:17 AM

Manufacturings value accelerated to
11,5% from a decline of 7,9% in the
first quarter.
This growth was enabled by higher
production in the basic iron and steel,
non-ferrous metal products, metal
products and machinery division; motor
vehicles, parts, accessories and other
transport equipment division; glass
and non-metallic products sector, and
textiles, clothing and leather products
sector.
The finance and real estate industry
made up 21,5% of GDP in 2012 and
accounted for 0,8 percentage points of
the quarterly growth, due to increased
activity in the banking sector and
financial services. The wholesale,
retail, motor trade and catering and
accommodation industries contributed
0,4 percentage points to quarterly
growth.
The improved second quarter growth
was expected, but is unlikely to
continue into the third quarter. Cofaces
forecast for the 2013 full year growth
is 2,0% down from 2,5% recorded in
2012.
COVER FEBRUARY 2014
February 2014.indd 79
The GDP figures and the July inflation
number at 6,3% weaken the case
of those calling for another rate cut.
Annual growth is still low at 2,0%,
placing the Reserve Bank in the
unenviable position of deciding on rates
in an environment of weak growth
and rising inflation stemming from a
weak currency. The Reserve Bank will
probably opt for an accommodative
policy and interest rates are likely to be
on hold well into 2014.
The agricultural sectors value slowed
to 3,7% from 4,9% in the first quarter.
The strike-plagued mining sector
recorded a decline in value in the
second quarter of 5,6%, after the
14,6% first quarter recorded growth.
Growth in the mining sector,
accounting for 9,3% of GDP in 2012,
shrunk 4% in 2012 and improvement in
2013 is unlikely.
Growth in the wholesale, retail
and motor trade and catering and
accommodation sector accelerated to
3,2% from 1,9%. Transport, storage
and communication sector value grew
1,6% from 2,2%, while growth in
the finance, real estate and business
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
plans, but its contribution to the total
value and the number of projects has
fallen.
Projects by the private sector
accounted for 60% of the total
value of projects announced. The
sector announced 59 new projects
worth R53,2 billion in 2012. General
governments contribution in value
and number of projects has improved
considerably over the past three years.
They announced 24 new projects
worth R22,8 billion in 2012, compared
to R17,4-billion in 2011. Public
corporations announced only two new
projects worth R12 billion, the biggest
value in three years.
2013 remains cloudy. Consumer
spending is likely to lose momentum.
Fixed investment by the public
sector could increase as government
accelerates its infrastructure spending
programme.
Government will have spent R1
trillion on infrastructures in five years
to the completion of the current
administrations term of office in 2014.
That is more than twice the amount
spent in the previous five years and
substantially more than was spent in
the last five years of apartheid.
FOREIGN TRADE
The trade deficit widened to R14,2
billion in July against the market
consensus of R8,9 billion and from
R7,7 billion in June. Exports increased
by 10,9% m-o-m, while imports surged
by 18,9%.
The cumulative seven month deficit
until July 2013 amounted to R89,4
billion compared to R59 billion over the
79
2014/02/05 8:17 AM
 Africa Rising
same period in 2012. Precious or semi-
precious stones boosted export which
rose by 21,7% m-o-m, base metals
(up 15,6%), and electrical equipment
(up 17,8%). Shipments of vehicles and
equipment increased by 8,4%. On a
y-o-y basis, precious or semi-precious
stones exports increased by 24,7%,
base metals by 37,8%, electrical
equipment by 21,7%, while vehicles
and equipment gained 23,8%.
On a monthly basis electrical
equipment boosted total imports,
which rose by 19,0% m-o-m, and
vehicles and equipment (up 32,4%).
On a y-o-y basis, electrical equipment
imports rose by 31,5%, while vehicles
and equipment increased by 30,8%.
FINANCIAL SYSTEMS
SAs financial system is stable thanks
to efficient regulatory infrastructure,
financial markets and financial
institutions. SA ranked third out of
144 countries in financial market
development and first in legal rights
in the financial sector and securities
exchanges regulation (Global
Competitiveness Report 2012-2013).
Domestic banks are capitalised above
Basel III levels, a new global regulatory
80
February 2014.indd 80
standard. South African banks are
operating with an average capital
adequacy ratio of 15% (12% for Tier 1
capital), above the minimum capital
adequacy requirement of 10%.
In June 2012 the SARB proposed a
minimum Tier 1 capital adequacy ratio
of 6,5% and a total capital adequacy
of 10% by January 2015. The financial
sector performed well in 2012.
Annual growth in broad money supply
(M3) slowed to 7,4% in July from 9,2%
in June. The market expected it to
ease to 8,7%. During the month, M3
grew by 1,2% or R29,6 billion, driven
by sharp rebounds in net foreign assets
and net claims on the government
sector, which rose by R11,1 billion and
R39,1 billion respectively following
sharp falls in June. Claims on the
private sector and net other assets and
liabilities declined in July, following
strong rises in June.
DEBT
National governments domestic debt
increased from R884 billion during
fiscal year 2010-11, to R1,06 trillion
during fiscal year 2011-12. Domestic
debt accounts for 90% of total
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
the number of employed people rose
by 0,7% or 100 000. Formal and
informal sectors created jobs, with the
number of people employed rising by
109 000 and 30 000 respectively.
Agricultural and private household
sectors shed jobs over the quarter. The
number of discouraged work seekers
increased by 35 000 after rising by 73
000 in the first quarter.
The unemployment rate is likely to
remain high in the short term as firms
remain cautious of expanding capacity
and employing more people in the
challenging economic and labour
environment. Employment is likely to
be driven by the public sector as it rolls
out its infrastructure programme.
The increase in the unemployment
rate adds to the evidence that the
local economy is struggling to pick up
momentum. Although recent indicators
have shown that demand-driven
inflation remains contained, risks to the
inflation outlook are still on the upside.
This, along with the poor economic
growth outlook, is likely to persuade
the Reserve Bank to maintain its
accommodative monetary policy stance
well into 2014.
COVER FEBRUARY 2014
2014/02/05 8:17 AM
 Sanlam takes Africa
by storm in 2014
The leadership of Sanlam
Emerging Markets (SEM)
the division of the JSE-listed
Sanlam group with a presence
in 12 emerging market countries
on three continents holds a
positive view for 2014, believing
that emerging market nations
in which SEM has a presence
still have the potential to grow
at multiples of their developed
market peers. SEM has identified
Angola, Mozambique, Zimbabwe
and other countries in East Africa
as possible expansion prospects
in the new year. In addition, SEM
will also explore opportunities to
deepen its presence in existing
markets.
Sanlam projects that the biggest
potential contributions will be from
India during 2014 and Nigeria over
time, and is comfortable with the
forecast contributions from the smaller
economies that make up their Africa
portfolio.
SEM, which contributes roughly
20% to the Sanlam groups gross
profit, has business interests in ten
African countries, predominantly in
the Anglophone countries, Malaysia
and India and is well positioned to
comment on growth prospects in these
emerging markets.
The business environment will remain
volatile as global markets come
to terms with the tapering off of
quantitative easing through 2014, but
the resultant exchange rate volatility
will have a far greater impact on larger
economies than the relatively insulated
African countries in the SEM portfolio.
A country like India will experience
a great deal of upward pressure on
interest rates and inflation, which will
COVER FEBRUARY 2014
February 2014.indd 81
in turn put a damper on economic
growth in that region, while an
economy such as Malaysia, which is
closer than most in Sanlams portfolio
to first world status, should be less
affected. Among African countries
(excluding South Africa) SEM expects
Namibia to be impacted by exchange
rate fluctuations due to its close ties to
the South African rand.
In terms of expansion prospects for
SEM in the new year, there are many
opportunities in emerging markets,
including the addition of a life insurer
in Malaysia and increasing the SEM
footprint by investing in Angola,
Mozambique, Zimbabwe and other
countries in East Africa.
AFRICAS INSURANCE PENETRATION
IS APPROXIMATELY 1,6% COMPARED
TO INDIA (3,4%) AND A GLOBAL
AVERAGE OF AROUND 7%.
One of the major factors supporting
growth in Africa and Southeast Asia
is that insurance penetration in both
the short-term and life categories in
these regions is low. Africas insurance
penetration is approximately 1,6%
compared to India (3,4%) and a global
average of around 7%. South Africa,
meanwhile, boasts among the highest
insurance penetrations anywhere in the
world, at 14%.
Financial services businesses in these
markets will therefore benefit from
both the above-average economic
growth potential and a catch-up in
insurance penetration over time. Add
to this the desire of governments and
international investors to develop the
burgeoning middle class in Africa and
India and you have a winning growth
formula.
Mobile phone penetration and the
return of international banking brands
to Africa are also growth drivers
HEINIE WERTH
CEO of Sanlam Emerging Markets
(SEM), says there are more than enough
positives to counteract concerns over
interest rates and inflation in 2014.
specific to the continent. A recent
report by GSMA reveals there are
253 million unique mobile phone
subscribers in Sub-Saharan Africa. In
their report titled Sub-Saharan Africa
Mobile Economy 2013 the organisation
predicts this number to grow to 346
million subscribers by 2017.
This is great news for diversified
financial services companies with
investments in Africa. Mobile phones
make it easier for insurance businesses
to communicate with their clients,
while mobile banking solutions make
it possible to collect premiums. The
success of mobile banking across the
region is due to the lack of bricks and
mortar infrastructure in many African
countries.
Sanlams growth in Africa and other
emerging markets will come from
achieving a balance between existing
businesses and new opportunities.
The secret for success in the emerging
market arena is to be flexible and
patient and to approach each country
with due consideration for its unique
culture and consumer needs.
81
2014/02/05 8:17 AM
 Africa Rising
Building a better South Africa
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
needs despite the financial challenges
of the previous three years, penalties
relating to allegations of anti-
competitive conduct and challenges in
the industry, according to the report
issued by PwC on 3 December 2013.
THE SOUTH AFRICAN
CONSTRUCTION INDUSTRY
The construction industry is cyclical
in nature. There is a stark difference
between the performance of the
Construction Index and the JSE all-
share index. The industry has been
punished for its lacklustre financial
performance in the down cycle, and
for the negative public perception
following the Competition Commission
process, findings and settlement in
2013. However, there are signs of
financial recovery on the horizon.
82
February 2014.indd 82
The
governments
infrastructure
development
plan and the
new Presidential
Infrastructure
Coordinating Commission are
positive signs for future growth in the
industry.
After remaining fairly flat from
2009 to 2011, capital expenditure
by public-sector institutions has
increased by 11,7% since 2011, with
total expenditure in 2012 amounting
to R202 billion. The scale of this
increase may be misleading, as new
construction work only increased by
3,5% to R137 billion, while plant,
machinery and equipment purchased
increased by 55% to R38 billion.
Actual construction expenditure in
2012 was R7,3 billion below the
2011 forecast. For new construction
expenditure, the difference was only
R1,5 billion, with the R6,5 billion
and R8,5 billion underspent by
municipalities and extra-budgetary
accounts respectively partially offset
by higher expenditure by public
corporations (R11,3 billion) and
National Government (R2 billion).
The remainder of the difference is
explained by delays in major renovation
projects. The private sector, usually
led by the mining industry, has been
a significant contributor to total
construction expenditure.
BY ANDRIES ROSSOUW,
PwC Partner
The growth in the order
book during 2013 was 1%, as
opposed to 16% for 2012. The secured
order book now only covers 1,2 times
current-year revenue compared to the
1,5 times of the previous year.
FINANCIAL PERFORMANCE OF THE
CONSTRUCTION INDUSTRY
Total revenue increased by 21% to
R145,7 billion the previous year.
Operating expenses increased by 19%,
taking into account the substantial
Competition Commission penalties.
Staff costs make up 27,9% of total
operating costs (2012: 29,4%). This
cost component increased by 13,5%,
which is well below the construction
revenue increase of 23% and could
indicate improved productivity or
margins improving to more sustainable
levels.
The report shows that the industry has
enjoyed higher salary increases than
other sectors.
The effective tax rate was 33%,
compared to 50% in 2012. Exclude
the impact of discontinued operations,
then this rate changes to 36% (prior
year: 48%). The higher effective rate is
a result of the non-deductibility of the
Competition Commission penalties,
COVER FEBRUARY 2014
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
governments delay in rolling out its
infrastructure programme has caused
delays in the award of tenders and
available work.
SAFETY
The construction industry, the
government and trade unions are
placing more focus on occupational
safety, for example recent initiatives
like the Construction Health and Safety
Accord of 2012. Stakeholders are more
aware of the need for discussion of
safety matters in companies annual
integrated reports, rigorous safety
inspections by the Department of
Labour and safety stoppages.
TAX CHALLENGES
The South African Revenue Service
(SARS) has listed the construction
industry as one of its seven focus
areas for the next four years. SARS
research has shown compliance within
the sector to be low. Therefore SARS
has expressed its intention to conduct
extensive compliance checks and
integrated audits in the industry, paying
particular attention to individuals and
entities that are awarded government
tenders. In addition, filing declaration
and payment behaviour will be
scrutinised for corporate income tax,
value-added tax (VAT) and employee
tax (PAYE). Attention will be paid to
contractors and subcontractors.
IMPROVING VALUE TO
STAKEHOLDERS
The construction sector adds significant
value to South Africa and its people.
Stakeholders in the industry include
employees, their families, unions
representing them, the government
as regulators and custodians of the
tax income for the country, investors,
suppliers and customers. The monetary
benefits received by each of these
stakeholders is often summarised
by companies in their value added
statements.
The value received by employees,
including employee tax, represented
82% (2012: 82%) of the value created.
This is a significant contribution to
the labour market. According to Stats
SA, more than 420 000 people are
employed directly by the construction
industry.
The state received 5% (2012) of value
created in the form of direct taxes.
The reality is that the state receives
significantly more if one takes into
account the tax on employee income
deducted from employees salaries and
net indirect taxes like VAT.
Construction companies need to
focus more on integrating risk and
performance management into their
strategies. Executive management
will have to steer their companies
through the low margin challenges,
while recognising the impact on all
stakeholders involved.

COVER FEBRUARY 2014 83

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

 Africa Rising
South African investors
trek into Africa
South Africans are trekking into
Africa this time to stake a
claim in fast-growing investment
markets south of the Sahara.
Imaras investment service is
designed to open up African
equity markets to local retail
investors.
The investment channel was originally
developed by sister-company Imara
Africa Securities to take institutional
funds into Africas sub-Saharan frontier
markets. S.P. Reid has widened the
offering to accommodate individual
saver-investors who until now have
had limited opportunity to buy shares
on African stock markets.
The new service from Imara S.P. Reid
opens up equity and bond investment
opportunities across 17 African stock
exchanges.
Imara gains an average of five new
investors a day, who see Africa as a
growth opportunity and a diversification
play. Many have decided to follow the
money. South African banks, retailers
and telecoms are moving into Africa
in search of better growth prospects
than those available at home. Big
84
February 2014.indd 84
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
international fund managers and
Africas financial markets and maintains
local pension funds are also active
extensive research coverage of regional
participants in these markets.
equities.
Retail investors were denied these
opportunities for many years. Now
they think if the big players are getting
involved, its time we got in on the
action as well.
Strong recent gains on several African
stock exchanges also excite strong
interest.
Some African indices have shown gains
well above 20%. This focuses attention
on the potential for capital gains at a
time when many international markets
offer lacklustre performance at best.
New retail clients are not the first to
trek into African markets. Even ahead
of the launch of the service, some
individual saver-investors were eager to
commit funds.
Imara has handled an inflow of R150
million from retail clients on the run-in
to the launch as word spread about
this opportunity. Over time, African
securities are expected to have an Imara S.P. Reid Stockbrokers reports bigger
accepted place in a well-diversified than projected response to the launch of
portfolio, especially among those who its Africa-wide investment service
have confidence in the long-term BY SIMON REID
growth of African economies. Head of Imara Africa Securities
COVER FEBRUARY 2014
2014/02/05 8:18 AM
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 Economy
QE performance
since 2008
The US Federal Reserve (Fed)
responded aggressively to
systemic risk in the financial
system during the credit crunch
by supplying liquidity, providing
loans to banks and non-bank
firms and buying assets. But has
it achieved what it set out to do?
WHAT WAS THE GOAL?
In addition to lowering interest rates
close to the zero-bound, the Feds
balance sheet became an important
instrument of monetary policy in
supporting dysfunctional interbank
markets and in trying to address
deficient demand in the economy.
The idea was to boost money growth,
support asset prices and reduce yields
(and lower borrowing costs). The
recovery in wealth, in tandem with
lower yields, was expected to support
domestic demand.
86
February 2014.indd 86
DID IT WORK?
It is difficult to quantify the impact QE
has had on the economy and asset
prices. What we can observe, though,
is that the Feds first announcement
on 25 November 2008 of its intention
to directly purchase the obligations of
housing-related government-sponsored
enterprises (GSEs), as well as the
mortgage-backed securities backed by
those GSEs, was immediately followed
by a material decline in the national
average yield on 30-year mortgages.
This downward trend in the yield was
maintained through to late 2012.
The Feds QE programmes were also
accompanied by decreasing spreads on
high-yielding corporate debt relative
to benchmark rates. Furthermore, the
Feds policy action helped to avoid a
sustained sharp fall in credit extension
to the private sector.
While it is argued that the Feds policy
didnt work because it resulted in a
large build-up in banks excess reserves
SANLAM INVESTMENTS
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
Fed.
A FINAL THOUGHT
It is ironic that in an era where the
usefulness of forecasts is increasingly
being questioned, the Feds policy rate
is now, through its forward guidance,
more strongly than ever tied to its
medium-term economic forecast.
First published in Sanlam Intelligence.
COVER FEBRUARY 2014
2014/02/05 8:18 AM
 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
survivors. Each kilometer was sponsored by Camargue
supporters and the public who were invited to get behind
the campaign that was inspired by former journalist Larry
Lombards story.
COVER FEBRUARY 2014
February 2014.indd 87
Former SAPA sports journalist and Brainstorm member
Larry Lombard was working on a story on child prostitution
and drug trafficking in the run-up to the SA Soccer World
Cup when he started receiving life threatening warnings.
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.
87
2014/02/05 8:18 AM
 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

88 COVER FEBRUARY 2014

February 2014.indd 88 2014/02/05 8:19 AM

 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.

COVER FEBRUARY 2014 89

February 2014.indd 89 2014/02/05 8:19 AM

 IRMSA Conference
Lack of economic growth is a risk in an environment where
50% of youth are unemployed, said Malala. He argued that
civil unrest is likely to increase, along with radicalisation of
our society manifesting in labour instability, more wildcat
strikes and jostling for power by unions. He believes
introducing the youth subsidy is one solutions to the issue.
He said current challenges in Cosatu is the opportunity for
government to introduce this legislation, as the trade union
appears to have less power in the alliance.
Malala said it is important that the quality of our education
system improves. He added that businesses need to focus
more on transformation and provision of jobs to prevent
the radicalisation of society (figures like Malema) from
increasing. He emphasised the need for businesses to
challenge corruption in the private sector and concluded that
the relationship between business, labour and government
needs to improve urgently.
ECONOMIC ASSESSMENT
Nedbank economist, Nicky Weimar, speculated on prospects
for 2014 and beyond.
Weimar said the South African economy is stagnant and that
structural constraints are the main impediments to the Gross
Domestic Product (GDP) growth of over 3%. She observed
that although South Africa is out of recession, a big concern
is a loss of growth momentum in the economy.
During the first and third quarter of 2013, the SA economy
grew by less than 1% and Weimar predicted that growth will
be in the (unimpressive) region of about 2% for 2013. This
level of economic growth makes little difference in dealing
with unemployment, poverty and addressing inequalities in
our society.
90
February 2014.indd 90
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)
sectors.
The instability seen in 2012, our loss of competitiveness
in manufacturing, as well as delays with our new power
stations are causing major problems for our economy,
said Weimer. She believes that when new power stations
are completed they will provide a good stimulus for the
economy.
Weimar observed the following structural economic
factors:
Fading international competitiveness
High electricity costs
Rising unit labour costs above inflation wage growth
versus fading productivity.
Hostile relationship between business and labour
(employers and employees) strikes
Poor service delivery, which raises the cost and risk of
doing business red tape and corruption at local authority
level and among provincial government(s)
Expensive and often unreliable transport and logistics and
the private sectors ability to expand operations
Persistent policy uncertainty although greater clarity is
emerging through the National Budget and NDP
These problems are specific to South Africa and they are
issues that only we can resolve, argued Weimar. She said
South Africa is the worst performing developing country in
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.
COVER FEBRUARY 2014
2014/02/05 8:19 AM

The poor world economic environment is cyclical and affects
many countries around the world, including South Africa.
In terms of the global economic situation, one of the key
problems for South Africa is that it is heavily exposed to the
Eurozone.
The good news for our economy, according to Weimar, is
the public sector infrastructure drive planned for the next
couple of years, and that South Africa continues to get
the required capital inflows it needs (also subject to credit
rating). The economy will only improve when government
and all stakeholders play their part in helping it recover.
LABOUR RISKS
The Marikana tragedy and the violent illegal farm strikes
in De Doorns have made labour risk a major challenges in
South Africa today. Following these two events, there are
now more sporadic strikes, usually unprotected.
Afzul Soobedaar from the Commission for Conciliation
Mediation and Arbitration (CCMA) tackled this issue.
Marikana and De Doorn have changed the nature of our
country and the trajectory of how we relate to each other
on labour issues, said Soobedaar. He said that these events
have forced stakeholders to take note of labour relations
and to review how things are currently working. In the
knowledge economy, we have forgotten that at the bottom
of this process is the human condition, he said.
Soobedaar believes that there are major lessons to be taken
away from these events:
Societal frustration manifested as labour dispute
At the core of the De Doorn strikes are issues that have very
little to do with labour, but more so with failed service delivery.
It was clear that workers are rejecting the recognised processes
of labour dispute, and in a number of cases they expected
employers to take more responsibility on social service issues.
A new form of association emerged worker
committees
The recent labour activities have seen an increase of
informal worker committees. This suggests a vote of no
confidence in the current process, that there is lack of
understanding of the needs of the workers and lack of
confidence in labour unions. The risk here is for employers
to abdicate their responsibility of talking to their employees.
Relying on the law and conventional rules of
engagement has limitations
COVER FEBRUARY 2014
February 2014.indd 91
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
employers to change their approach on how they relate to
their staff and urged them to focus on the human condition
in their approach to interactions.
Socio-economic issues cannot be left unattended
Soobedaar said that many of the strikes occur as a result
of failure of service delivery and that better service delivery
will help normalise the status quo. He advised employers
to ensure that, in their negotiations, they are dealing with
individuals employed by them.
We need a paradigm shift in collective bargaining
Soobedaar suggested that, in light of the recent labour
developments, the current framework may no longer be
sufficient in management of labour issues. He believes that
with awareness and constant effort to communicate and
appeal to the humanity element of everyone the situation
can be managed better.
THE NEED FOR THE NATIONAL DEVELOPMENT PLAN
(NDP)
Dr Ismail Lagardien argued that the primary problem when
their team conducts presentations on NDP, is that individuals
opposing the bill usually respond to what they think is in the
plan as opposed to the actual content.
Another argument against the bill is that it is an ANC
document, DA document and SACP document. He
indicated that the work began in the mid-2000s during the
Mbeki era. It was discussed at the Polokwane conference
and then formally adopted at Mangaung. The starting point
was to determine what is wrong with South Africa (with
evidence) and to find proactive solutions to these challenges
to ensure future success.
Lagardien said the plan is built on six pillars:
- To mobilise South Africans around a common purpose;
- an active citizenry;
- to grow an inclusive economy;
- the need to improve capabilities;
- the need for a capable and developmental state; and
- responsibilities of leaders throughout society to work
together to solve our problems.
The plan is implemented in intervals of five years and should
be fully implemented in 2030.
91
2014/02/05 8:19 AM
 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

February 2014.indd 92 2014/02/06 7:45 PM

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

COVER FEBRUARY 2014 93

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 INSURANCE IN YOUR POCKET, FOR YOUR POCKET
DEVICE
SureThing, a new online gadget insurance solution founded
by Richard Neville, was recently launched in South Africa.
SureThing provides immediate, inexpensive insurance for
cell phones, laptops, game consoles, tablets, laptops and
e-readers.
94
February 2014.indd 94
Historically, portable gadgets were only included on
insurance policies if you owned your own home. We know
how precious and expensive portable electronic devices
are and we want to empower young people to take
responsibility for these items, says Neville.
COVER FEBRUARY 2014
2014/02/05 8:20 AM

SANTAM CRANKS UP THE EDEN STUDY
In recent months, Santam handed over the completed
installation of an Early Warning Disaster (EWD) System to the
municipality in George in the Southern Cape. A 2011 study
conducted by CSIR, UCT and WWF found that insurers have
experienced an increase in losses due to volatile weather
conditions meaning that communities need help to become
climate-resilient.
The hand-over marks part of the next phase of the Eden
Study, a research study on how climate change impacts
on local communities. The system will assist with the
transmission of warnings of severe weather conditions and
disaster notifications.
The polycom, linked to the Eden Disaster Management Centre
in George, has been installed also been installed in George,
and will give the local community and businesses access
to emergency messages or alerts in English, Afrikaans and
Xhosa.
Ray-ann Sedres, Head of Integrated Sustainability at Santam
said that 2012 was one of the worst years for weather-related
catastrophes in South Africa. With damaging floods in Cape
Town and hail damage to summer crops in SAs Eastern
region, the need to develop climate-resilient communities is
critical, she says.
Extreme weather conditions are becoming the norm and
Santam believes it is important for the South African insurance
industry to develop meaningful ways of working with local and
national government and for authorities to help communities
to deal with increasing number of weather disasters.
The Business-Adopt-A-Municipality (BAAM) initiative, a
strategic partnership with the South African Local Government
Association (SALGA) and the Department of Cooperative
Governance, is set to help municipalities bear the responsibility
of managing ramifications of a disaster when it strikes an
initiative Santam has joined. Santam also donated much
needed fire-fighting equipment to each municipality earlier
this year and is currently rolling out fire fighting training with
the support of the Fire Protection Association of Southern
Africa (FPASA).
COVER FEBRUARY 2014
February 2014.indd 95
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
focus for PFP and its UK shareholder, Price Forbes and
Partners, locally there has been a drive to capitalise on
opportunities in the commercial space. With 20 years of
experience in diverse commercial portfolios including large
property groups, motor fleets, group schemes, travel insurance
and retail and wholesale industries, Pillai was brought on
board to drive growth in the commercial market in South
Africa.
Pillai has been involved in building product and system
capabilities to handle the corporate and commercial business.
Pillai explains that PFPs strategy for commercial business is
built around applying a corporate mind-set to commercial
clients, and involves getting to know and understand each
clients own business while focussing on delivering a personal
service to them.
These developments are in line with Michael Donegans, Chief
Executive of the Price Forbes Group, initial comments a year
ago, Establishing an office in South Africa offers businesses
a new alternative choice delivered by an independent group
focused on offering clients a bespoke and unrivalled service.
Over the last 12 months Pillai has created over 50 agency
agreements with local insurers and UMAs, in order to ensure
total market coverage. It is vital to have this type of access to
the market in order to get clients the most competitive pricing
and rates available, says Pillai. The competitive landscape for
commercial broking involves small brokers who often only use
two or three of the larger markets, and this possibly reduces
their effectiveness in accessing the best rates.
PFP has invested in IT with the recent implementation of the
Genesys Ski system, which will be used for its commercial and
corporate administration processes, including issuing of policies,
administration of claims and collection of debit orders.
PFPs claims are all handled in house, headed by Agnisha
Carstens, who boasts over 32 years of short-term insurance
experience.
We are confident we now have the foundation in place to
really drive both our corporate and commercial growth in
2014, concludes Pillai.
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2014/02/05 8:20 AM
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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
factors that could confront your clients crops and assets. As the leader in specialised asset
and crop insurance, we have the ability to develop innovative risk solutions so that no matter
what risk their farm faces, weve got it covered. Santam. Insurance good and proper.

To find out more about Santam Agricultures unique insurance solutions,

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

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

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