Bulking up when expanding into Africa

While many South African firms have either invested, or are actively looking to invest north of our borders, managing businesses in the rest of Africa brings with it its fair share of challenges.

For clients, there are various political and economic exposures which they face such as the dramatic slump in oil and commodity prices, and the uncertainty arising from general elections which have taken place or are still to take place in many countries.

Wait and see

These factors impact on both the release of funds by governments for much needed infrastructural development and have also resulted in a wait and see approach by foreign investors who want to know that there will be political stability over the long-term. Of course these headwinds directly impact on intermediaries who need to respond to client’s needs.

Other factors which are particularly relevant at present include the depreciation of local African currencies against the US Dollar which directly impacts on sums insured, particularly where the client is dependent on imports of plant and raw materials.

The intermediary clearly needs to ensure that his client’s sums insured are regularly reviewed in order to avoid under-insurance at times such as these.

The terrorist scourge

The threat of terrorism continues to be very real in many African countries, and cover needs to be sufficiently broad to respond to such acts. This also extends to the risk of kidnap and ransom, which is also prevalent in several countries.

It is also important to highlight that the African regulatory environment is ever-changing and the intermediary needs to be aware of these changes to ensure relevant advice is provided.

Stemming the tide

There is still the perception in many countries that there has been a flight of premium overseas and local regulators are actively seeking to stem this tide.

We are therefor seeing increasing insistence on local placement whereby risks must first be offered to the local insurance market before external reinsurance will be permitted. This is the basis, of course, and the practice will differ from country to country.

Once again, the intermediary has a pivotal role to play in assisting the client to comply with these diverse regulations. The challenge for the intermediary is to then find the right balance between support for markets, as required by insurance legislation, and accessing these global programs, generally by means of reinsurance.

Direct correlation

The way in which covers are arranged will directly impact on where the claims proceeds will be paid. It is critical to ensure that any claim proceeds can be paid out in the country in which the loss has occurred in order to avoid potential tax or other penalties.

Most organizations want to be seen as good corporate citizens in whichever country they operate; they want to comply with the laws of the land and do not want to jeopardize their reputations by breaching any regulations.

Local network

Another very key role of the intermediary involves the selection of local insurer(s), because there are many low-capital insurers operating in our region.

Clients need to have comfort that their broker has the necessary skills and experience to recommend the appropriate local insurers, as this is obviously of critical importance when a claim arises.

Many insurers have direct branch representation and affiliates in most countries on the continent with a wide range of clients across the full spectrum of commerce, industry and parastatal operations. The skills of brokers to best serve clients who are expanding into Africa are growing and these skills are among the best in the world.

The African insurance landscape is a complex one and requires the advice of intermediaries with an established network and experience in handling pan-African insurance programs.