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Risk savvy businesses beat new path into Africa

31 January 2007 Alexander Forbes Risk & Insurance Services / Beach

As Africa's leading insurance brokerage, Alexander Forbes has been advising an increasing number of South African companies manage their risks, including insurance regulation compliance, in Africa.

According to Michael Duncan, Managing Director, AfriNet Risk Services, "the pace of change and growth in Africa is no different from that in South Africa."

"Savvy businesses know Africa is not all about opportunity, it's also about risk. Risk that can damage a companys entire operation and global reputation. Without understanding and effectively managing the kinds of risks which are often unique to Africa, business can become very unpredictable."

Despite some sobering experiences in the post-1994 rush into Africa, "the success of companies like MTN has shown South African investors that money can be made in markets traditionally considered 'difficult'," says Duncan.

Following a host of South African clients who have ventured into Africa over the last decade, AfriNet has learned to understand and manage the critical risks facing business on the continent.

In particular, large corporates tend to experience problems with the insurance regulatory environments in many African countries. While this problem is certainly not unique to Africa, African regulations are often quite prescriptive in the way they seek to protect local insurance markets.

"While it is always commendable to support the local insurance market if you can, African markets are often undercapitalised due to years of nationalisation and disinvestment. This invariably means that the larger and more complex risks need to be reinsured abroad, usually in South Africa, requiring the development of a unique contract." 

Furthermore, Duncan says insurers in African markets often lack financial stability or demonstrate a poor approach to claims. He also points out that services offered by local intermediaries in Africa are invariably limited and technically inadequate. As a result claims are often repudiated or clients are exposed to gaps or duplication in cover.

"We have also seen occasions where the local intermediary does not pay over premiums timeously, thereby invalidating the cover.

"That small operation in Zambia, for example, could become the Achilles heel of the whole business. A major loss or liability exposure would not necessarily be limited to Zambia; the reputation of the business globally could be compromised - with far greater financial implications in the long run."

Duncan advises that local insurance market requirements need to be dovetailed with a clients global insurance programme. This is a complex exercise and requires professional guidance. Since local insurers are often financially weaker than the clients they are insuring, creating global linkages is critical.

Before entering a new market, Duncan advocates the use of Risk Management specialists to assist in identifying the risks inherent in many countries - from political and economic to operational and regulatory - and introducing the right risk mitigation strategies.  

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