Welcome to our Annual National Insurance Seminar Durban … · Annual Insurance Seminar: Program Welcome by Craig Woolley The rocky regulation road: An update Sandile Khoza ... EPCM

Welcome to our Annual National

Insurance Seminar – Durban

2 October 2014

Annual Insurance Seminar: Program

Welcome by Craig Woolley

The rocky regulation road: An update

Sandile Khoza

How can we sleep when our beds are burning? Some aspects of fire insurance claims

Craig Woolley

Construction Project Liability Policies: Making them work in practice.

Ane Potgieter and Clinton Slogrove

Tea Break

International insurance trends: lessons from Norton Rose Fulbright offices around the world

James Bateson

Failure of investments to perform: The broker’s liability

Deniro Pillay

All in a flap over Freight Forwarder’s Liability

Andrew Robinson

Q & A: Thanks and closing

Maria Philippides

Cocktail Party

The rocky regulation road: An update

Sandile Khoza

Director

2 October 2014

Introduction

• SA as IAIS member following European regulators

– increased supervision, focus on solvency, governance, consumer protection & risk management

• More sophisticated & knowledgeable consumers

• In line with global consumer awareness trends

• Compliance costs on the increase, as degree & scope of regulation has intensified

• New legislation demanding more reporting with shorter timelines

Since previous update

• OSTI introduced appeal mechanism

• Commencement of certain sections of PoPI Act

• Treating Customers Fairly incrementally “rolled out”

Ombudsman Appeal mechanism

• Introduced for final rulings issued by OSTI (1 Dec 2013)

• Leave to appeal to be granted by OSTI - 30 days to appeal

• Parties may be represented at own cost

• Appeal Tribunal ruling final for OSTI proceedings

• Consumer appellant may further pursue matter in court

• Insurer appellant may still review OSTI or Appeal Tribunal ruling in court

• “Second bite at the cherry” for insurers in ombud forum

OSTI

• OSTI resolved claims worth R119m in favour of consumers during 2013 (2012: R114m)

• OSTI was quoted as saying:

“The increase in the number of complaints may be because there was an increase in claims registered due to bad weather conditions over the past year and the growing awareness of consumers of their contractual rights”.

Treating Customers Fairly (TCF)

• TCF Roadmap suggested 1 January 2014 effective date for TCF enforcement

• FSB adopting incremental approach to implementing TCF

• No single "launch date" planned for formal TCF implementation

• TCF principles in future new over-arching legislation

• Turning regulation to supervision

Protection of Personal Information Act (PoPI)

• Certain sections & parts of PoPI Act commenced on 11 April 2014

• Fine or 12 months imprisonment for minor breach

• Major breaches will attract bigger fine or 10 years imprisonment

• Data security breach costs may include:

– identifying & repairing security compromises

–communicating with affected customers

–‘man hours’ spent managing process before the Regulator, and

–cost of reputational damage control

• International insurer fined in UK for breach in SA

Looking ahead

• Insurance Laws Amendment Bill, 2013

• Solvency Assessment Management (SAM)

• Financial Sector Regulation Bill (“Twin Peaks Bill”)

Insurance Laws Amendment Bill 2013

• Withdrawn by Minister before it lapsed

• Purposes of proposed amendments:

– introduce insurance group supervision pending broader review of insurance laws & SAM;

– strengthen governance, risk management & insurers’ internal controls;

– align SA’s adherence to international regulatory principles & insurance standards

• Alternative interim measures for ILAB,2013

Solvency Assessment Management (SAM)

• From 1 January 2016 insurers required to report to FSB in accordance with Solvency Assessment Management (SAM)

• Primary purposes of SAM to:

–protect policyholders;

–align SA insurance industry standards to international insurers & reinsurers

Financial Sector Regulation Bill (Twin Peaks)

• Will introduce Financial Services Ombud Schemes Council

• Council will oversee all voluntary ombud schemes

• This being an additional level of bureaucracy

• Too many laws with too few experienced & properly financed public resources to enforce them

Conclusion

• There is a new approach that is consumer-centric (Treating Customers

Fairly)

• Now insurer, not the underwriting manager or broker primarily

responsible for consumer satisfaction

• Challenge of under-skilled & under-staffed regulators, so they rely on

insurers to police intermediaries

• Result favours big players as outsourcing requires close monitoring

• Proper free choice is insisted upon & POPI will change marketing

Conclusion

• Regulators to allow insurance product innovation & not regulation that disrupts creativity

• Complying with regulation can provide opportunities:

–Competitive advantage as regulations may drive other smaller industry players out of business or reduce market share.

–Product innovation.

–Attract foreign investment as the organization's regulatory compliance will be more in line with international standards.

Disclaimer Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members (“the Norton Rose Fulbright members”) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

References to “Norton Rose Fulbright”, “the law firm”, and “legal practice” are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together “Norton Rose Fulbright entity/entities”). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.

The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

How can we sleep while our beds are burning?

Craig Woolley

Director

Norton Rose Fulbright South Africa

2 October 2014

SA Insurance Industry’s Claims Ratio

62% 2011

66% 2012

68% 2013

26

27

Text and half page chart

Fraud

Non-disclosure

Arson

Murder

Magic Bargains vs S A Eagle Insurance Company

Ltd

• Burglar Alarm

• Fire Report

• Accellerant used

• Motive?

Arson

R60 million GEIS fraud

Charged but trial not

finalised

Aboo not a member of

close corporation

Non-Disclosure

Authority for

requirement to disclose

charges

March Cabaret Club & Casino Ltd vs The London

Assurance

R2 million loaned to close corporation

Written statement signed by member

Key personnel on insurance policy

Evidence of insurance broker

Who was the directing mind?

Don’t under-

estimate criminals

Onus – he who

alleges must prove

Costs of trial

Lessons learnt

“The interests of the mortgagee have priority over the insured’s interests, but are limited to the outstanding amount of the bond. These interests will not be invalidated by any act or omission of the mortgagor or owner of the insured buildings, provided that the act or omission takes place without the knowledge of the mortgagee”

Mortgagee Clause




Construction Project Liability Policies

Making them Work in Practice

Clinton Slogrove and Ané Potgieter

Associates


2 October 2014

• The general concept of a PLP

• Pre-contractual phase: one chance to get it right!

• Why choose a PLP

• PLP wordings – some special features

– of cross-liability clauses

– Xtrata Coal South Africa v Sandvik Mining and 7 others

• Handling claims made under a PLP

• Conclusion

Outline

• Single project

• Owner controlled – contractor controlled

• Combined CAR-PL-PI

General introduction

Owner

Contractor

Sub-contractors

General

Owner

Project Manager Consultants ie

Architect Engineer QS

Project PI

• External third parties

• Co-insured third parties

Claimants

• Multi-Phase Contracts

• Liabilities flow from the contract terms

• The policy is designed around the contract

• Standard form contracts with particular conditions

• Know the risks associated with the project

Pre-contractual phase

• A competent and experienced broker

– Knows the Standard form contracts

– Assists drafting Particular Conditions relating to insurance

– Most onerous responsibility of all parties

• An informed and resourced client

– Provide the details requested by Broker

– Provide Broker with access to contractors and consultants

• An experienced and informed underwriter

– Specialised underwriting staff to assess risk

– Size and technical complexity of the project matched by appropriate underwriting resources

What is needed to make the PLP wording work…

Variable factors influencing cost

• Size of the insured

• Size of the projects

• Nature of the work and geographic spread

• Claims experience

• General market experience

• Individual cost v collective cost

Cost

Multiple contractor base exposes owner to

• Failure through non-payment

• Exhaustion of aggregate

Volatility

• Definition of “the insured”

• Description of project and period of insurance

• Cross-liability wordings generally

Project policy wordings – some special features

• Independence of each “sole” insured

• Claims and counterclaims between co-insured parties

• Independent legal representation

• Independent claims handling

• Contractual limitations of liability

• Bridging the gap between contractual limitations and coverage provisions

Cross-liabilities

Employer (Plaintiff)

EPCM Contractor (1st Defendant) Contractor

Xtrata Coal South Africa v Sandvik Mining & 7 others

Project PI

Insurer (3rd Defendant)

• Conflicting interests between insured parties

• Independent advice

• Independent claims handling at all levels

• Confidentiality and privilege

• Assumption of claims control

Handling claims

• Loss adjusters and legal advisors

• Experienced loss adjuster

• Preservation of rights of both parties

• Preserving evidence

• Seeking legal advice maintaining independence

Handling claims

• PLP’s are highly complicated liability insurance contracts

• Multiple parties can give rise to complex claims

• Properly worded PLP based upon project contracts is

essential

• Knowledgeable and experienced brokers, underwriters,

insured parties, professional advisers necessary

• Communication between all parties essential

• Working group for all parties for major projects?

Conclusion

Disclaimer Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal

entity, are members (“the Norton Rose Fulbright members”) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself

provide legal services to clients.

References to “Norton Rose Fulbright”, “the law firm”, and “legal practice” are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together “Norton Rose Fulbright entity/entities”). No

individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has

any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.

The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law

discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

International insurance trends: Lessons

from around the world

James Bateson

Norton Rose Fulbright LLP

2 October 2014

Anyone who thinks the ANC is going to run South Africa is living in cloud cuckoo land

Margaret Thatcher, 1978

Senator Obama cannot possibly believe he can be elected US President next year

Christopher Hitchens, 19 September 2007

Overall risks to the outlook seem less threatening than six months ago

IMF, World Economic Outlook, 2007

I think there may be a market for five computers

Thomas Watson, Chairman of IBM, 1958

Did you know?

• Over 2.4 billion people use the Internet

• Around 140 million in Africa

• Africa is the fastest growing mobile network market in the world (50% growth per year since 2002)

• 50 billion devices will be connected to the Internet by 2020

• There are 100 billion searches on Google every month

• Every minute, 24 hours of video is uploaded to YouTube

Interconnectivity

‘Big Businesses’: Geographical Shift (McKinsey)

Source: McKinsey Global Institute, Urban World: The shifting global business landscape, October 2013

‘Big Business’ defined by McKinsey as a business with revenues exceeding US$ 1bn

Now:

8,000 ‘big businesses’ exceeding $1bn revenue

$57trn in combined revenue (equivalent to 90% global GDP)

73% in developed world

In 2025:

15,000 exceeding $1bn revenue

$130trn in combined revenue

45% in developing world

Location of Fortune 500

How will this affect insurance?

733.4 770.0

925.0

1 185.7

42.2 69.2

136.6

386.8

0

500

1 000

1 500

2 000

2008 2013 (e) 2018 (f) 2025 (f)

US

$ B

illio

n

Non-Life Premium Growth For Target Markets (excl. Motor and Accident & Health)

Developed Markets Developing Markets

As companies are increasingly operating across borders, supply chains are becoming more global and complex. The risks companies are facing are not only multiplying but becoming increasingly interdependent.

Events on one side of the globe can impact operations on the other; be that a natural catastrophe or a cyber-attack.

Risk managers face a set of challenges presented by the intensification and rising interdependence of risks and speed of change of business in the global economy.

Jason Harris, Chief Executive, International Property and Casualty, XL Group

• Technology products – cyber, data protection

• Regulation and Investigations/D&O exposure

• Political risks

• Mergers and Acquisitions insurance

• Natural catastrophes

The “Big Five”:

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=EreTiLVbWLdt0M&tbnid=qk00GsJlxM6Z_M:&ved=0CAcQjRw&url=http://www.kruger-2-kalahari.com/Kalahari.html&ei=rb4iVJayGsquyASaqYKQBA&psig=AFQjCNHjf6KDadM6MdxGyRxRUcLXFOhwyg&ust=1411649536793646

• Background – historically an uninsured risk?

• The global cost of cyber crime

– Between USD100 billion to 500 billion per year

– 823 million exposed records

– Largest single incident – 152 million records

• The market / opportunities

– The US market - USD1.3 billion of premiums in 2013

• Legal issues – the EU and US perspectives

• Market predictions

• “Big data”

Cyber liability

Number of cyber claims worldwide by industry in 2013

29.3%

15%

12.8% 10.7%

7.9% 7.1% 6.4%

2.9% 2.9% 2.9% 2.1%

0

5

10

15

20

25

30

35

Perc

en

tag

e

Industry

Healthcare

Financial Services

Retail

Professional Services

Technology

Education

Non-profit

Entertainment

Other/unknown

Hospitality

Telecommunication

Cyber liability

• Background – historically an uninsured risk?

• The global cost of cyber crime

– Between USD100 billion to 500 billion per year

– 823 million exposed records

– Largest single incident – 152 million records

• The market / opportunities

– The US market - USD1.3 billion of premiums in 2013

• Legal issues – the EU and US perspectives

• Market predictions

• “Big data”

Regulatory driven claims

• Insurance regulation is becoming generally more intrusive and complex

– Solvency II – The enhanced role of the International Association of Insurance

Supervisors

– Globally Systemic Important Insurers

• There has though been a change in emphasis; from a focus on prudential measures towards consumer protection measures

Regulatory driven claims – changing environment

Investigations

• Background

– Invasive cross border regulation

– Increasing personal accountability

– Scrutiny of management teams

• Impact on D&O insurers – claims trends

• Investigations by regulators

Political Risks

• Unrest will increase as the “losers” of globalisation react

• Types of cover

• The issue is not the unrest but the location of infrastructure and assets

Mergers and Acquisitions

• Background - growing global popularity linked to recovery in M&A activity

• Cover provided

• Product applications

• The market around the world

– In North America (1998-2013) – claim frequency of 28% of policies written

– In EMEA and APAC (2002-13) – claim frequency of 12% of the policies written

2012 Global Overview: Regional breakdown of

frequency of claims

0 20 40 60 80 100

North America

EMEA

APAC

Number of Breaches

Number of Claims

Number of Policies

2012 Global Overview: Claims Made by Country

40%

3%26%

3%

3%

13%

6% 6% North America

United Kingdom

Australia

Asia-Pacific

France

Spain

Sweden

New Zealand

2012 Global Overview: Claims by Industry Sector

0

1

2

3

4

5

6

7

8

9

10

Agricultu

re

Commoditie

s

Consumer G

oods

Energy

Financial S

ervices

Healthca

re a

nd Pharm

aceutic

als

Constructi

on/Real E

state

Technology

Telecoms

Other

Manufactu

ring

Types of Alleged Breaches – Global

• Natural disasters – impact of climate change

• Pandemics

–Definition

–Classes of business affected

–Secondary impacts

• Product integration

Natural Catastrophes

The global insurance big five




FINANCIAL INSTITUTIONS

ENERGY

INFRASTRUCTURE, MINING AND COMMODITIES

TRANSPORT

TECHNOLOGY AND INNOVATION

PHARMACEUTICALS AND LIFE SCIENCES

Failure of investments to perform: the

broker's liability – case study

Deniro Pillay

Director


2 October 2014

If its “too good to be true”, it probably is “too good to be

true!”

If its “too good to be true”, it probably is “too good to be true!”

Facts

• Broker: short and long term investment advice

• Investments with insurance companies and financial services companies

• Faced claims by 26 former clients totalling R3.7 million: negligent

investment advice

• Edwafin: unlisted public company and registered FSP

Failure of investments to perform: the broker's liability – case study

Facts

• Edwafin: offered debentures – 63 months locked capital investment

• Return of 15% to 20% p.a.

• Higher commission: 4%

• Basis of broker’s investment advice

• Failed to obtain Edwafin’s audited financial statements or prospectus


Facts

• Between August 2006 and September 2008: advised clients to invest

• Between August 2006 and October 2008: Edwafin met investor

obligations

• First problem with payment arose in October 2008

• Edwafin liquidated by investor, unopposed, on 22 May 2009

• Investigation by Scorpions: allegation of pyramid scheme


Issue of negligence

• Broker insured for: any legal liability arising from claims made against him

for the breach of duty in connection with the business by reason of any

negligent act, error or omission committed in the conduct of the

business by the broker.

• Definition of business included dealing in unlisted securities

• Exclusion Clause: any claim made against the broker arising from or

contributed to by depreciation (or failure to appreciate) in value of any

investments, including securities.


Issue of negligence

• Durr v ABSA Bank (SCA – 1997)

– Durr advised to invest in secured debentures and preferent shares

– Broker failed to request audited financial statements or prospectus

– Debentures factually unsecured and preferent shares allocated irregularly

– Court’s decision: broker would be negligent if he engaged voluntarily in any

potentially dangerous activity unless he had the skill and knowledge usually

associated with the proper discharge of the duties connected with such

activity.

– Broker found to have acted negligently

Failure of investments to perform: the broker's liability – case

study

Issue of negligence

• Broker was negligent as he failed to:

– Obtain and consider Edwafin’s prospectus

– Obtain and consider Edwafin’s audited financial statements

– Consider risks associated with investing in an unlisted public company

– Perform a proper risk-assessment and needs analysis for each client

– Investigate Edwafin’s claim: capital investment guaranteed by fidelity

guarantee


Applicable Exclusion Clause

• Broker not indemnified against any claim made against the broker arising

from activities which were not authorised by his FSB licence

• Broker only licenced to sell long-term insurance products

• Edwafin licenced to sell debentures and securitised debt

• Broker appointed by Edwafin as its authorised representative to sell

debentures


Lessons to be learnt

• Be aware of risks associated with unlisted public companies

• If it is “too good to be true” it probably is “too good to be true!”

• Perform a proper Investigation into financial position of the proposed company

• Perform a proper risk-assessment and needs analysis for each client

• Be aware of the terms of your professional indemnity policy










All in a flap about freight forwarders’ liability insurance

Andrew Robinson

Norton Rose Fulbright

2 October 2014

http://athena2.corp.nortonrose.com/vip/PictureLibrary/PowerPoint template/Front cover/Headlights/Transport/ATFT5Y_Alamy_RM_14-Apr-2021_BW_ppt_cover.jpg

PRODUCTION CARRIAGE CONSUMPTION

VALUE CHAIN

LOGISITCS

Freight Forwarder

Stock

Throughput

Liability

Insurance

Transport

Brokers Bailee

Insurance

TRANSPORT

INSURANCE

Cargo Insurance

[GIT]

Hull and

Machinery

Insurance

Air Carriers Road

Carriers

Sea Carriers Clearing & Forwarding

FREIGHT

FORWARDERS

Principals Agents Warehousemen

Agent

Contractor

Freight Forwarder

Standard Trading Terms

Bespoke contracts

Freight Forwarder









Q&A: Thanks and closing Maria Philippides

Director

Norton Rose Fulbright

2 October 2014




Documents

Welcome to our Annual National Insurance Seminar Durban … · Annual Insurance Seminar: Program Welcome by Craig Woolley The rocky regulation road: An update Sandile Khoza ... EPCM