Addressing challenges in a market full of risk
Has South Africa ever seen a time of such socio political unrest since the birth of the New South Africa 20 years ago? This was the question on everybody’s lips as they gathered for the first Insurance Institute of South Africa (IISA) forum for 2016.
Gathering for the forum on the day Pravin Gordhan presented his budget speech, attendees at the IISA forum gained key insight into the South African political landscape, as well as the risks presented to the commercial vehicle market and the value of UMAs in the new legislative landscape.
The fractured landscape
The first speaker on the day was Dr Frans Cronje, CEO of the South African Institute of Race Relations, who painted a dire picture of the current landscape the country finds itself in. “Fundamental economic reform is needed to get us out of the situation we are in, and the situation is dire. There are pressures on all sides and consumer growth is waning, threatening to hit the floor. This will be a huge blow to the economy.”
Possibly one of the biggest challenges to the reformation of the South African economy is to find a new export partner for the commodities that South Africa is traditionally famous for. China is moving away from an infrastructure based economy to a consumption based economy. Cronje pointed out that this is being driven by a fast growing Chinese middle class, the size of which will eclipse the population of the US within the next ten years.
Looking towards the future, what will be some of the challenges that the 2019 government will face? “The first task of the 2019 government will be to find a new export partner as the Chinese push forward with their consumption led economy. Coupled with this, agriculture and mining is flat, so the new government will need to work through the struggle to find new jobs to help the poor and impoverished.
The anatomy of risk
The risk we experience in society is directly related to government’s current inability to create jobs. This leaves people desperate to make a living to support their families and increases the instances of crime in society.
“The economic condition of our country is a good indicator of why crime is prevalent today. We need to devise intelligent ways to mitigate risk and to protect assets. We need to create partnerships that are mutually rewarding and based on risk management,” said Wayne Rautenbach, National Manager of Regent Commercial Vehicles.
As one of the largest insurers of commercial vehicles in the country, Rautenbach pointed out that the company is constantly analysing trends in order to get a handle of the risks the company faces. He pointed out that commercial vehicle crime is costing the country billions of Rands a year. A recent statistic by Ctrack pointed out that this could possibly be as high as R3 billion/y.
While a lot of work is being done to manage this risk, because of the nature of what is being hijacked or stolen, it becomes extremely difficult to eradicate it all together. Rautenbach pointed out that the majority of the goods being stolen are fast moving consumer goods which can be sold quickly into the market. This means that if significant leg work is not done within the first hour of the truck being commandeered by the criminals, the chance of recovering the merchandise drops significantly.
The mechanics of a dark world
The world of commercial vehicle criminal is becoming increasingly intelligent and mobilised. Richard Pearson, Director at John Pearson and Associates, said that this is becoming increasingly concerning for insurers. According to research done by his organisation, total losses in the insurance industry in a single quarter last year amounted to R58 621 440.
The first step in the hijacking process is to get informants into the companies; these informants usually hold key positions in the companies and are armed with the specific logistical information of a load. The goods get offloaded in a port (usually Durban or Cape Town) and are loaded onto a truck which makes its way to its final destination. The truck is waylaid on the road by members of the South African Police Services, Traffic Police, or people posing as these officials. These officials tell the driver that they need to check that the load conforms to road regulations. “On route top its final destination, the truck is then asked to pull over either by the hijackers or other road traffic officials who then commandeer the vehicle. These goods are then eventually sold into the market at a flash sale on a payment term only basis. No money physically changes hands,” said Pearson.
The world of the UMA
In a world where volume is usually the driving factor of profitability, large scale insurers offer significant benefits, but so can niche insurers.
While large scale insurers can offer a benefit when it comes to pricing, Steve von Roretz, Executive Director at Leppard Underwriting, argues that underwriting management agencies (UMAs) have many other benefits when it comes to niche insurance offerings.
However, the future of this is uncertain in a world which is being driven by regulatory reform. In one of the most crucial pieces of regulation, Treating Customers Fairly, Von Roretz questions whether every company knows the full impact of adhering to all six outcomes highlighted by the document. He also asks whether insurers are fully geared towards adhering to TCF.
The other two key pieces of legislation are also causing headaches in the industry. “Solvency Assessment and Management (SAM) is causing distress in the industry because companies are wondering whether they will be able to fully comply with the minimum capital requirements set out by the regulator. Another key document is the Retail Distribution Review (RDR) as it will fundamentally change the way we do business. We need to get our heads around it in order to prosper,” said Von Roretz.
Editor’s Thoughts:
What is becoming clearer is that the insurance industry is existing in a world that is increasingly being driven by risk. What can be done to address the risk that we face in society? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
