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Risky business as insurers look to build key relationships

09 May 2016 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

Risk analysis is a key component in the financial advice lifecycle. This is increasingly important in the current market as your clients are interacting in what is an increasingly risk based environment. We are aware of the conventional risks that surround us; but are we in tune with the unconventional risks?

South Africa is a net importer of goods. From car parts to goods which were previously produced /manufactured locally, South Africa has recently opened its doors much wider to international companies who see South Africa as a key consumer market as well as a launchpad into the rest of the continent.

Dangerous liaisons

One of the oldest business principles in the world is that one needs to spend money in order to make money. This in itself can lean towards significant risk as global economic dire straits are having a telling effect over the world.

“We are seeing an increased number of cases of business rescue. Shipping companies who invested significant capital in acquiring ships that they intend to use for trade are being liquidated. Owners, charters, operators and managers are unable to meet their financial commitments associated with running the vessels. Arresting parties – including cargo interests and underwriters – then have to foot the bill for the preservation costs of arrested vessels,” said Carol Holness, an Associate at Norton Rose Fulbright.

This poses a particular worry for clients transporting goods. Significant risk analysis needs to be undertaken before entering into an import agreement, otherwise the client is left uninsured when the inevitable happens and the transportation company is liquidated. Holness adds that the company is seeing more instances of innocent cargo falling victim to this on a monthly basis.

“The port of Singapore is the world’s second busiest port and sees significant traffic into Asia. Reports show that there are a number of newly purchased container ships sitting abandoned in the water because their owners took advantage of what they thought would be an upswing in the market which never happened. These are the times we are living in,” says Holness.

Profiling a thief

Once the goods are cleared at the ports the challenges of moving the goods via road become more apparent.

The world of commercial vehicle crime is becoming increasingly intelligent and mobilised. Richard Pearson, Director at John Pearson and Associates, says 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 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 to 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 road warrior

“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,” says Wayne Rautenbach, National Manager of Regent Commercial Vehicles.

Rautenbach points out that there are a number of companies in the industry who are constantly analysing trends in order to get a handle of the risks clients face. 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 points 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.

There needs to be collaboration between the police and insurers where identified trends are reported so that specific measures can be put in place to combat a rise in this type of crime.

Editor’s Thoughts:
A lot has been said about the crime situation in South Africa. We all know it is significant and it is hard to contain because of the intelligence that criminals are showing. Relationships need to be built with the police, but how can you build a relationship that is not built on trust? How do we move forward as an industry? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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