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A new era dawns for global insurance industry

12 April 2011 Santam

Industry pow wow looks at systemic risk, sustainability and starts developing a set of industry-wide principles to manage new and emerging risks

Johannesburg recently hosted a meeting of great significance to the global insurance industry. It was the first in a series of workshops that will take place in seven major regions of the world, where the industry came together to discuss systemic risk, and change, and how to ensure that the sector remains sustainable in the face of profound change in, for example, socio-politics, climate, regulatory and public policy environments.

The Johannesburg meeting was convened by the United Nations Environmental Programme Finance Initiative (UNEP FI) whose mission it is to engage the world’s insurers in defining, and adopting, a set of principles for sustainability in the sector. It sees insurance as a crucial enabler of a sustainable economy that is inclusive, resource efficient and carbon conservative.

The meeting, the PSI Regional Consultation Meeting for South, West and East Africa, was a project of the United Nations Environmental Programme Finance Initiative (UNEP FI) and was presented by UNEP; Santam, South Africa’s leading short-term insurer; and the South African Insurance Association (SAIA). Its specific purpose was to consult on the draft principles for sustainable insurance (PSI) ahead of the Rio +20 Conference next year.

Paul Clements-Hunt, Head of the UNEP Finance Initiative says that more than any other factor, short-term insurance gives people and businesses a sense of financial security and enables them to plan, predict and act with confidence and certainty in an ever changing world.

The industry, he said, was in the very business of predicting, and managing, change. It held premier intellectual property about change and about how factors in the external environment (such as vehicle crime at one end of the spectrum, and profound climate change on the other) affected the financial wellbeing of people, communities and nations. External factors, however, also affected the profitability and sustainability of insurance companies.

It was difficult, if not impossible, Clements-Hunt said, to separate the one from the other as the industry relied as much on financially confident markets as people relied on the industry to cover their investments and assets, be those assets privately owned or owned by corporate or public entities.

The South African insurance sector already claims a number of risk management victories. It was largely through its work with the South African Police Service; with other service providers (such as vehicle tracking companies); and with clients, that motor vehicle crime has halved in the last nine years. Yet, delegates agreed that to continue achieving victories of this magnitude would tax the very foundation of the industry and demand that all players collaborate to reduce the level of shared risks on the ground for what really can be called ‘the greater good’.

The dialogue kicked off in Johannesburg and the local industry was well represented by its leaders with a small number of delegates from countries outside South Africa. Africa, delegates acknowledged, was not a homogenous market and although the industry agreed on principles for sustainability, often cultures, prevailing local levels of inherent risk, available resources and values demanded something different from market to market. The role of industry associations and sector leadership across regions were noted as critical ingredients for success.

“We have hugely different insurance markets across Africa,” said CC Bruce, Executive Director at Enterprise Life Assurance Company Limited in Ghana, one of seven continental delegates at the 75+ strong meeting. “When we talk of sustainability in our industry, we need to acknowledge that different nations have different sustainability needs.”

Yet, the very purpose of the meeting was to address questions and issues such as this, and help the industry find common ground to, as one delegate put it, “change thinking and drive action for the very survival of everyone in this room today.”

Delegates agreed that the journey to sustainable insurance was fraught with challenges. For example, there was conflict between narrow short-term shareholder profitability imperatives and long-term diffuse environmental concerns. Would the industry, for example, insure trawlers that were known to deplete fish stocks? Or would it insure machinery destined for the controversial ‘fracking’ of the Karoo? And if it did, or if it did not, what would be the larger implications of decisions such as these?

Ronnie Napier, Chairman of the South African Insurance Association (SAIA), had confidence in the sector and in its collective commitment to collaborate. “The various companies in the sector already collaborate in multi-insurance pools where assets so big demand, through sheer virtue of value and size, multi insurance partners.

“There is a long history of collaboration already for assets such as national airports and fleets. Asking the industry to agree on a set of principles for sustainability in insurance is but a natural step forward.”

Delegates spoke for two days, in a series of brainstorm sessions and presentations, not only about defining a set of principles, but also about attaching actions and shared learnings to those principles to help them evolve into common business practices across insurance delivery and operations in Africa.

Discussion addressed granular issues such as government’s specific role in mitigating risk; the importance of educating people on how to manage their own risk; and how to ensure that the principles would be applicable to (and helpful to) both intermediaries and businesses who used the direct model of selling insurance.

The principles for sustainable insurance will now be road tested globally and a collective set, with industry backing, will be presented to the Rio +20 Conference in Brazil next year. That global conference will see the dawning of a new era for the global insurance industry, and for the billions of private individuals and entities (both corporate and private) that they insure.

The meeting was chaired by the United Nations and hosted by the South African Insurance Association (SAIA) and leading short-term insurer, Santam.

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