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Risk management on the increase across Africa

01 October 2015 Myra Rego
Myra Rego, FAnews Journalist

Myra Rego, FAnews Journalist

While South Africa’s focus on Eskom’s load shedding issues continues to make headlines, the reality is that the economy faces many other risks.

Volatile market conditions, skills shortages, regulation and compliance are just some of the concerns making it increasingly important for brokers and insurers to provide clients with sound risk management advice to help them mitigate risks. 

A list of concerns

According to the Risk Frontiers Africa 2015 Survey, published in Commercial Risk Africa, political risks top the list of concerns for risk managers across Africa (91% of risk managers surveyed from 15 countries across Sub Saharan Africa) this year, mirroring the experience of 2014. 

Overall, 97% of South Africans have seen an increase in political risks and also put corruption risks into their top three with a concern about the impact of this on the perception of the risk of doing business in the country, particularly for foreign investors. 

Interestingly, when it comes to concern around compliance issues, 69% of South African risk managers see an increase in compliance risks this year, with 21% saying there has been no change. 

The 2015 figures compare to two-thirds of respondents in 2014 who were worried about increased regulatory risk, while one-third were not so concerned but agreed they faced increased regulatory challenges. 

All the risk managers surveyed in 2015 agree they have seen increasing compliance demands. Generally, risk managers in South Africa express concern that, while regulation applies equally to all, they believe many small businesses in particular are simply paying lip service to the regulatory requirements. 

The result is that some businesses will prove to be in breach of the regulations. They also believe that, ultimately, those who do not embrace the new requirements for stronger risk management ethos across organisations will find themselves less profitable, or that they will fail. 

In South Africa, almost three-quarters of those who responded to the survey (73%) say they believe risk management is increasing; with 20% saying there has been no change, 3% claiming risk management has decreased and 3% saying they are not sure if risk management has increased or decreased. 

A degree of uncertainty

In the current South African landscape, Sadi Farooqui, Compliance and Risk Officer at Coface said the dynamics revolve around a very volatile economic climate that cannot be controlled and around the degree of uncertainty the industry faces. This has been the main reason that broader risk management principles have been introduced in order for the industry to exercise greater control on internal risks. “The challenges are twofold. Firstly identifying how to control enterprise risks at a strategic level and secondly, how to source risk management solutions that can mitigate those risks which are common for most industries,” he said. 

Rob Göllnitz, Head of Risk Consulting at Aon South Africa, added that the relatively soft insurance market, coupled with a slowdown in the economy, leads to less investment in risk management programmes.

“Where companies have long standing risk management programmes in place these are generally continued, however trying to develop and implement new risk management programmes is a costly exercise which companies may be reticent to invest in. These companies would rather comply with the minimum requirements in terms of regulations and legislation. However, underwriters are still continuously looking for risks which are better managed in order to mitigate their risks,” continued Göllnitz.

A leader or follower?

“International markets have greater access to tools for accurate assessments of market scenarios. However, there are similar challenges because of a slowdown in the global economy that has encouraged organisations internationally to become more risk averse,” continued Farooqui. 

Göllnitz agrees that many of the larger global clients have well developed risk management programmes in place which continue to run regardless of the state of the market or economic conditions.

Despite this, “the South African market is highly advanced and definitely one of the leaders in risk management. All the large financial service providers have successfully implemented risk management standards for local regulation bodies which are rated on par with the rest of the world,” said Farooqui. 

“South Africa’s risk management in some instances far surpasses what we have seen in the international arena. On the other hand there are entities where risk management is fairly low on the agenda and only the basics in terms of regulation and legislation are complied with. So in some cases South Africa is a leader and in others a follower,” said Göllnitz.

Both Farooqui and Göllnitz mention that brokers play a crucial role in the risk management process in understanding the industry which they are exposed to by ensuring that firms do not exceed their exposure beyond the risk appetite set by the organisations they are representing. 

“Brokers assist clients in risk management related activities, up to a point, from the development and implementation of the programme, to the provision of risk management personnel, as well as the reporting on risk management related activities, both to the clients and underwriters,” said Göllnitz. 

Farooqui and Göllnitz also believe that technology is a game changer for risk management as it is instrumental in changing the methodology that was used in the past to quantify and manage the risks at enterprise level leading to the overall improvement of the risk management programmes.

Editor’s Thoughts:
Sound risk management is a critical element in this industry. With the ever changing and unpredictable environment it is important for brokers and insurers to actively advise clients on risk management strategies to assess and control risks which can potentially endanger assets. Do you agree with this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za

Comments

Added by Rob Hodgkiss, 02 Oct 2015
Insurer participation in the risk management process should not be limited to providing a risk transfer mechanism. True tangible value is created for the Insured when Insurers provide solutions and insights into risk mitigation in addition to traditional insurance products. The mitigation not only prevents or minimises damage costs, it promotes sustainability and in some cases attracts interest from investors. The spin off of proper Risk Engineering is thus created for Insured, Broker and Insurer alike, which in turn contributes to a healthier economy.

Rob Hodgkiss - Head: Risk Engineering, Zurich South Africa
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