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INDUSTRY INSIGHT2010 challenges2010 challengesCASE STUDY: Alan Hutcheson CEO ofTrackergives an insight into how the
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2010 Challengesand opportunities
EDITORS NOTE
The hot seat of this issue ofEn-terprise Risk deals with a fascinating real
time case study entitled Rising from theashes. During the early hours of Saturday
17 January 2009, the Tracker head office in
Darrenwood, Johannesburg was gutted by
a fire that ripped through the building. Ac-
cording to Andre Ackerman, Trackers CFO,
the disaster recovery plan (DRP) was ex-
ecuted with military precision, enabling the
company to carry on with their business of
recovering vehicles. They took their first call
just five hours after the disaster. The entire
administrative staff was fully operational at
an off-site location by Monday morning.
The case study looks at the vital role that
each of the parties played in the implemen-
tation of the plan. The client was Tracker,
the disaster recovery site and service pro-
vider was IBM, the insurance broker was
Alexander Forbes Risk Management Serv-
ices, the insurer was Mutual & Federal and
the loss adjuster was Cunningham Lindsey
South Africa. The damage was estimated at
some R40 million, but the DRP ensured that
not even a fire could prevent Tracker cus-
tomers and staff from taking back tomor-
row. A story well worth reading.
Enterprise Risk starts the year 2010 with
two industry-insight articles that give the
views and opinions of the leaders in the
short- and long-term sectors. Each focuses
on the lessons learned from 2009, and the
challenges and opportunities that lie aheadfor the upcoming year. While 2009 was most
certainly a difficult time for the industry,
there are undoubtedly many opportunities
for those willing to take the initiative. The
one word that just about every leader men-
tioned as being a key priority is customer.
As a result, the levels of customer servicewill rise even further.
In the last quarter of 2009, I took over the
editorship ofEnterprise Risk when Sandra
Jordaan left. This was intended to be for
the period while a replacement was being
found. I am pleased to let you know that
we have now appointed an editor forEn-
terprise Risk. Bronwyn Barnard, who cur-
rently edits Emergency Services SA and
Occupational Risk for 3S Media, will be
taking over from me with effect from the
next issue, with Monique Terrazas continu-
ing as assistant editor. I wish the team all
the best for taking this growing magazine
to even greater heights in this remarkable
year of 2010. I would also like to thank the
industry for their support.
Editor
ENTERPRISE
ENTERPRISE RISKFeb10
PUBLISHER Elizabeth Shorten
EDITOR Debbie Besseling
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CONTRIBUTORS Johann Maree, Keith Marshall, Anton
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In the early hours of aSaturday morning last year, the Track-
er building was engulfed in flames,
causing an estimated R40 million in
damages to the first floor of the build-
ing. Fortunately, no one was injuredand a comprehensive disaster recov-
ery plan was in place. A combination
of Trackers disaster recovery plan,
and its partnerships with the relevant
role players, ensured that what could
have been a business disaster turned
The chain of events following the fire that raged at Trackers building
early last year proved sobering and provided fascinating insight into
the dynamics of executing such a plan.
TRACKER FIRE A CASE STUDY
Risingfrom theashes
into one of the proudest moments in
Trackers history.
On the following pages, we look at
how the disaster recovery (DR) plan
was implemented by considering the
roles of the various players, what
they did right and the lessons that
can be learnt from this exceptionalexperience.
The exceptional teamwork and pro-
fessionalism of all the relevant role
players have been identified by all in-
volved as one of the key success fac-
tors in implementing the DR plan.
THE ROLE PLAYERS
The client Tracker
The DR site andservice provider IBM
The insurance broker Alexander Forbes risk
management services
The insurer Mutual & Federal
The loss adjuster Cunningham Lindsey
South Africa
The implementation of Trackers DR plan was impressive, turning apotential business crisis into a proud moment for the company.
Disaster recovery in act ion
Following a devastating fire attheir building in the early hours of a Sat-
urday morning early last year, Trackers im-
plementation of a well-planned and thor-
oughly tested disaster recovery (DR) plan
was nothing short of impressive: critical
services were recovered within three hours
and the execution of the total recovery plan
was completed within six days.
Of course, behind the scenes lay months
of preparation, testing and capital expendi-
ture spend to ensure not even a fire could
prevent Tracker customers and staff from
taking back tomorrow.
THE DISASTER RECOVERY PLAN
Business continuity is the number-one risk
on Trackers risk register, says Alan Hutch-
eson, CEO of Tracker. The first business
continuity plan was devised by an external
consultant as far back as 2004, and this planreceived a major overhaul in 2007. At the
time, a new DR contract was entered into
with IBM and the DR location was moved.
Following this overhaul, we maintained
Aftermath of the fire that ravaged the
Tracker building in 2009the discipline of continuously updating the
business continuity plan.
PLANNING
Hutcheson notes that several factors con-
tribute to successful planning of DR. You
have to know your business, and never
assume that a disaster will not happen. Sce-nario planning is crucial. But perhaps what
is most important is that business continu-
ity is taken seriously. The company must be
willing to invest time and money to facilitate
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5
ENTERPRISE RISKFeb10
thorough planning and a DR plan owner
within top management must be tasked to
ensure that senior people are putting in the
time and effort required. Critical processes
and IT systems must be identified, and the
technology layout of the business must be
documented in such a way that non-IT peo-
ple can also understand it. The plan should
always cater for more, rather than less. Itmust also be remembered that small things
do matter, for example in this case, recover-
ing our staffs personal belongings as soon
as possible.
Documenting the plan in full is another
key element identified Hutcheson. If your
full business continuity plan is not docu-
mented, you better avoid the disaster. In
this specific instance, because there were
no casualties of key staff, we did not have
to implement the full plan. We had experi-
enced executives who had prepared the DR
plans to execute them.
Choosing the right DR location and sup-
plier is part of the planning process. Crucial
factors to consider include the proximity of
the DR site to the main business location
in terms of the risk versus the cost for both
natural and unnatural disasters, difference
in power and communication grids, as well
as operational practicalities such as staff
transport. The cost of a DR infrastructure, as
well as additional costs such as insurance,
must also be considered. The assistance of
a service provider with the right know-how
and facilities are invaluable to ensure the
right decisions are made, and for this rea-
son Tracker partnered with IBM.
IMPLEMENTATION AND TESTING
You cant have a plan on paper only,
says Hutcheson. Long before we needed
our business continuity plan, we had im-
plemented crucial aspects thereof, for ex-
ample, signing the DR site contract, pre-
paring the DR site and putting the right
communication infrastructure in place, in-
cluding updating staff contact details on a
monthly basis.
Successful testing was done in critical
areas. If possible, do a full test. Do not as-
sume that aspects of the DR plan do not
require testing. Develop testing plans and
record the results. Implement changes from
what you learn in the testing.
EXECUTION
Execution requires military precision, says
Hutcheson. The DR director must take
charge, maintain discipline and not allow
panic. Crucial to the execution is the right
person for the job, concise decision-making
and a skilled secretary who can document
all meetings and immediately distribute the
minutes with detailed action plans. Senior
staff need to be involved but only members
of the crisis management team should be
present at the meetings. It is also crucial as
top management trusts the appointed team,
and while holding people accountable, al-
lows reasonable freedom with regard to
decision-making.
In terms of technology, the relationships
with vendors, customer-partners, data and
telecommunication partners are critical. The
perceived rats and mice systems are im-
portant and companies should also consider
alternate technologies to make a change
over easier.
PROTECTING THE BRAND
A comprehensive communication plan tar-
geting the media, customers and stakehold-ers, as well as staff members, was immedi-
ately implemented to protect the brand.
The first step was to issue a holding state-
ment, conveying the following key mes-
sages:
Only the top floor of one of Trackers ad-
min buildings was affected.
A comprehensive Disaster Recovery Plan
is in place.
Tracker was still able to track and recover
vehicles.
There was no suspicion of a crime syndi-
cate attack.
Nobody was hurt.
Effectively, it was business as usual.
Once the company had established a firm
handle on the crisis, a proactive media re-
lease highlighting all the positive aspects
of the fire was disseminated. Constant con-
tact was maintained with key media to en-
sure that the facts accurately reported.
A general script was prepared for custom-
ers and other stakeholders, and the control
room staff were briefed to handle queries.
Key stakeholders and board members were
notified and a statement was posted on the
Tracker website. An emergency Tim from
Tracker recording session was scheduled.
Online social media and blog sites were
monitored and addressed. An advertorial
CRITICAL FACTORS FOR A
SUCCESSFUL DR PLAN
A strong and capable DR team to take controlof the situation.
Senior staff should be allowed to make
decisions pertaining to their areas.
Main focuses:
critical operations up and running ASAP
vigorously defend the brand
communicate with customers/partners
be sensitive and supportive to staff
thorough understanding of IT and
Ops systems.
Strong vendor relationships.
Loyal and committed staff acting
as ambassadors.
Dont underestimate the softer issues. Remain positive and maintain a sense
of humour.
Provide continuous food and refreshments to
the DR team and those helping out.
IFYOURFULLBUSINESSCONTINUITYPLANISNOT
DOCUMENTED, YOUBETTERAVOIDTHEDISASTER
KEY ELEMENTS OF SUCCESSFUL DR
Hutcheson identifies the following key
elements in a successful DR:
Planning
business continuity plan
documenting the plan
choosing the right DR location and
supplier Implementation
Testing
Execution
Alan Hutcheson, CEO, Tracker
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branded DR site. Coloured Tracker shirts im-
proved coordination and stationery packs
were handed out. Hot snacks and drinks
were served and music played to lift morale.
All teams were fully briefed by their manag-
ers, before entering the state-of-the-art DR
site and logging onto all the normal Tracker
systems. A voice, fax and e-mail script was
prepared for all staff to help field queries on
the blaze.
TRIUMPH FOR TRACKER
R40 million of damages to the Tracker
building, a loss that in most other instanc-
es would have crippled a business, turned
into a triumph for Tracker. Perhaps more
importantly, the brand suffered no dam-
age because of a superbly executed
communications strategy.
Tracker staff, instead of being flustered
and disorganised, experienced some of their
proudest moments as they witnessed the
professionalism with which the recovery
was executed, a fact confirmed by the many
proud and congratulatory messages on the
Tracker website.
A crucial element of a DR plan is ensuring business continuity and
resiliency. This was highlighted in this case study.
IBM The DR site and service provider
Business cont inui t y and resi l iency
Following the fire at theirbuilding during the early hours of a Sat-
urday morning, the Tracker team ran their
operations from the IBM BCRS site for
60 days, requiring in excess of 500 seats.
The Tracker operations were relocated
within hours of the fire and as a result of
the exceptional planning and profession-
alism of all the parties involved, it was
business as usual even before news of the
fire broke.
Cynthia Crose, vice-president, integrated
technology services at IBM sub-Saharan
Africa, explains just how quickly the re-
covery plan was implemented. The IBM
BCRS team was summoned to the recovery
THE RIGHT BUSINESS RESILIENCY STRATEGY
Business resiliency can provide near-term cost efficiencies as well as strong, long-term ROI.
Mitigate risk Avoid the costs of downtime, brand damage and market share lost to competitors,
and reduce the financial impact from business disruptions.
Protect brand and revenue Properly assessing the threats to your IT infrastructure, their potential
business impact and your tolerance for risk can help you plan a realistic strategy.
Protect capital Analysing cost trade-offs can help you avoid unnecessary investment.Reduce costs Resiliency solutions can help protect you from failed restores and lost data.
Improve service You can align resilient infrastructure to the needs of your business to maintain
service-level agreements based on your tolerance for r isk.
facility even before the fire fighters had left
the scene, and by 10am the technical team
had started rolling out the call centre, and
the emergency control room was relocated
to the IBM BCRS site. By 11am, car track-
ing was up and running again, and by 2pm,
the call centre seats for Trackers staff were
ready and office seats were being rolled out
and delivered. By 5am on Monday morn-
ing, an IBM team, along with Trackers cri-
sis management team, were on site ready to
welcome Trackers staff and assist them in
getting them settled in.
Crose notes that there were several suc-
cess factors that contributed to the success-
ful implementation of the business conti-
nuity plan. These are graphically presented
in graph 1.
LESSONS LEARNED
In this case, a number of critical success
factors implemented by IBM were again
highlighted as crucial to a successful busi-
ness continuity plan, adds Crose. Firstly,
the business continuity processes need to
be flexible, while adhering to IBM govern-
ance guidelines. Secondly, test, test and
test to ensure the team not only knows,
but also owns the clients disaster recov-
ery plan. Thirdly, the value of having in-
frastructure 100% ready at all times was
also underscored again. And lastly, we
were reminded never to underestimate the
volumes of call records, people, etc., which
requires careful logistical planning in terms
of often-overlooked issues such as park-
ing, extra housekeeping requirements and
additional security.
Crose also says that testing and exercis-
ing is vitally important to ensure effective
and efficient business continuity. Apart
from making sure the business continuityplan works, testing and exercising is an
important way to train the relevant people
and to maintain a high state of readiness.
It also allows a company to capture any
Cynthia Crose, vice-president,
Integrated Technology Services, IBM,
sub-Saharan Africa
was placed in several key newspapers within
a day to put stakeholders minds at ease.
To avoid rumours and panic, positive
e-mails and SMSs were sent to all staff
members within hours of the blaze, followed
by details concerning their return to work.
Senior managers were briefed by trauma
counsellors to deal with their staff. To keep
inquisitive staff away from the scene of the
fire, a variety of photographs of the burnt
building were posted on the intranet site.
On the Monday morning, staff were greeted
by a welcoming committee to an extensively
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7
HOT SEAT
changes and to audit the plan, while creat-
ing awareness among staff at all levels, as
well as among stakeholders.
BUSINESS RESILIENCY DOES MATTER
Many different threats and opportunities
can arise that can threaten the stability of
a companys business and IT operations,
from the obvious weather-related risks,
such as hurricanes or floods, to the unex-
pected, successful marketing or public rela-
tions campaigns that result in an overload
of a system and a subsequent crash, ex-
plains Crose. A business resiliency strat-
egy must centre on understanding all the
potential risks, which can be data driven,
business driven or event driven, across theenterprise.
IBM's successful business continuity
is illustrated in DIAGRAM 1
The broker plays a pivotal role in the relationship between the insured,
the insurer and external specialists such as the loss adjustor.
ALEXANDER FORBES The insurance broker
The role of t he broker
The recent Tracker fire claimclearly demonstrated how the right broker
can optimise the synergies between the vari-
ous role players in the insurance industry.
When the Tracker team arrived at their
premises on the morning of Saturday 17
January 2009 to discover an estimated
R40 million of fire damage, their first port
of call was their broker, Alexander Forbes
Risk Services.
Alexander Forbes risk services immedi-
ately appointed a loss adjuster, Cunning-
ham Lindsey South Africa, to visit Trackers
premises, assess the damage, investigate the
root cause and adjust the claim once it had
been formulated by the client and presented
by the broker to the insurer. On the Monday
following the fire, Mutual & Federal ratified
the loss adjusters appointment and within
48 hours after the devastating fire, the loss
adjustors preliminary report was received.
Since the loss was correctly covered by
the insurance policy arranged by Alexan-der Forbes, Mutual & Federal could swiftly
process the claim and make interim pay-
ments to assist Tracker with the immediate
costs faced.
Arranging the right cover with the right
insurer, acting swiftly within the insurers
mandate and choosing the right loss ad-
juster were crucial to the prompt settling of
the claim. However, perhaps most important
was the brokers role in arranging adequate
insurance and managing the clients ex-
pectations and experience throughout the
claim process.
The broker is the link between the in-
sured, the insurer and external specialists
such as the loss adjuster, managing expec-
tations and optimising synergies among
the various role players, says Jaco Smit,
business unit manager at Alexander Forbes
risk services.
THE BROKER-CLIENT RELATIONSHIP
In the relationship between the broker and
the client, it is crucial that the broker has a
thorough understanding of the clients busi-
ness. In essence, the broker must understand
the clients needs by having an in-depthunderstanding of his clients business and
then translate these into a comprehensive
risk management strategy to ensure that
all exposures to the clients business are
properly addressed.
A broker must take a holistic view of the
clients business, and provide the expertise
Jaco Smit, business unit manager,
Alexander Forbes risk services
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8
and insight to ensure an enterprise-wide ap-
proach to risk management is implemented,
says Smit.
THE BROKER-INSURER RELATIONSHIP
While the clients needs must always come
first, the value of long-term relation-
ships between brokers and insurers cannot
be underestimated.
It is crucial that both the broker and in-
surer clearly understand and operate within
the agreed mandate to ensure prompt settle-
ment of claims,adds Smit.
THE BROKER-LOSS ADJUSTER
RELATIONSHIP
One of the most important characteristics of
a good broker is the ability to harness both
internal and external expertise and experi-
ence. Usually, the insurer appoints an ad-
juster of its choice. However, an experienced
broker will liaise with the insurer prior to
the appointment of a loss adjuster to agree
on the latters availability, flexibility, skill
and integrity to ensure the client receives a
fair settlement, says Smit.
Warren Buffet said, It is only when the
tide goes out that you learn who has been
swimming naked."
"When facing a catastrophe of this
magnitude without the assistance of an
experienced broker, this bit of Buffet wis-
dom takes on a whole new meaning, com-
ments Smit.
DIAGRAM 2 Interlinked relationships
The raging fire at Trackershead office in Randburg caused an esti-
mated R40 million of damage. The chain
of events following the fire proved that a
trusting relationship between policyhold-
ers, short-term insurers and brokers can
result in swift action to solve a potentially
crippling problem, explains Ken Law-
rence, general manager: claims technical
for Mutual & Federal.
CHAIN OF EVENTS
The first link in the chain was the swift
reporting of the loss to Trackers broker,
the Alexander Forbes group. They immedi-
ately informed Mutual & Federal, and the
insurer responded rapidly by assembling a
senior team to deal with the loss.
Alexander Forbes also immediately ap-
pointed a loss adjuster. The loss adjusters
preliminary report was received within 48
hours, allowing the claim to be processed
without delay.
An internal special investigations unit
was appointed to establish the cause of
the fire, with the assistance of forensic in-
vestigators.A loss management plan was presented
to Tracker, providing clarity regarding the
claims process. To date, Trackers claims
experience had been exceptional, and
The fire that occurred at Trackers head office demonstrated the value
and peace of mind the right insurer can provide.
MUTUAL & FEDERAL The insurer
The role of t he insurer
given the substantial loss and potential
lengthy period of business interruption, a
number of interim payments were made to
Tracker to assist in reinstating the busi-
ness, says Lawrence.
KEY SUCCESS FACTORS
The claim was handled within the short-
est period and the business was reinstated
within hours. This can be attributed to a
number of key factors: Formidable teamwork between all par-
ties involved.
Mutual & Federals senior manage-
ment team dealing with the claim had
DIAGRAM 3 Illustrating Mutual &
Federal's partnership approach
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9
extensive underwriting and claims man-
agement experience, as well as the au-
thority to make immediate decisions.
Alexander Forbes clearly understood
their mandate, duties and options
from the outset and coordinated the
entire process, while managing the
clients experience.
Mutual & Federal had a strong and posi-
tive relationship with the loss adjuster,
whose timely report was a crucial aspect
in the swift handling of the claim.
Tracker had a comprehensive disaster re-
covery plan, which was well executed.
LESSONS LEARNT
A number of pertinent lessons can be
learned from the Tracker claims process:
A partnership approach to good claims
management is required.
The loss adjusters roleis vital in the claims process and through
possible pre-loss nomination or knowledge,
a vital trust relationship can be established
with the insureds relevant representatives.
According to Ken Maclean, branch man-
ager, Cunningham Lindsey South Africa,
As students of insurance, we read about
the principles of utmost good faith and
the responsibility of the insured to dis-
close material facts. However, the need for
trust goes way beyond this. As far as the
insured is concerned, it is a two-way street
with the insured needing to trust and have
faith in all those involved in the insurance
arrangements both from a policy and claims
point of view.
The test of any insurance is the claims
service. Unlike many things that are bought,
it is invisible at the time of purchase and
therefore effectively taken on trust from
both parties to the contracts point of view.
The insured needs the comfort of trusting
the service and understanding what willoccur when and how, in the event of a loss,
to protect assets and trading as well as,
most importantly, reputation and brand.
The broker can play a vital role in the
appointment of a loss adjuster, ensuring
that the appropriate firm with the requisite
technical expertise and capacity is selected.
A trust relationship must therefore also ex-
ist between the broker and adjuster.
The first day on any major incident is
crucial as critical decisions will need to be
taken to ensure trading continuity. While
business continuity plans such as Trackers
disaster recovery plan may be in place,
the adjuster is influential in the decision-
making process, and the insured must have
comfort that the adjusters commercial acu-
men will have been gained by involvement
in a range of industries and loss scenarios.
Reputational risk runs far beyond any
coverage provided by the policy and this
is where the need for trust is the greatest.
Communication remains the key to reten-
tion of trust, an awareness of issues fac-
ing a business is vital and the broker again
has an important role to play in convey-
ing information not only to the insurer but
also to the adjuster in a claim scenario,"says MacLean.
Ken Lawrence, general manager, claims
technical: Mutual & Federal
Transparency and good communications
are essential.
Insurance must be recognised as the
final mitigation for the unexpected and
as the clients backstop.
Giving the broker a clear mandate to act
in the event of loss, such as the appoint-
ment of a loss adjustor from an approved
panel, accelerates the claims process.
For Mutual & Federal, this experience has
highlighted the importance of fostering
excellent business relationships with our
brokers and policyholders. When a short-
term insurer, broker and policyholder act
as a unified force, a large-scale disaster
can be resolved within hours and the
Tracker case study is proof of this, says
Lawrence.
Although being paid by the insurer, the loss adjuster acts as a mediator
between the insured and the insurer to achieve a fair settlement.
CUNNINGHAM LINDSEY SA The loss adjuster
Negot iat ing claim set t lement s
Ken Maclean, branch manager,
Cunningham Lindsey SA
Trust is mutual and in the context of
claims is best demonstrated by early re-
lease of funds through interim payments at
a time where cash flow is most likely to
be stretched.
With the nature and vast extent of the
damage, we have no reservations in plac-
ing on record that had it not been for the
Trackers disaster recovery plan, the loss
would have resulted in far serious implica-
tions from both a cost and business conti-
nuity point of view.
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COVER STORYGENERAL INSURANCE ENTERPRISE RISKFeb10
The context of a problem consistsof the strategic context, the organisational
context and the risk management context.
A working knowledge of the FAIS Act and a
documented business plan will assist in map-
ping the context for the development of a riskmanagement plan.
STRATEGIC CONTEXT
The strategic context includes the na-
ture of the environment in which a fi-
nancial advisory business operates. Some
questions advisers should look at are:
What relationships does the advisory busi-
ness have that are necessary for the busi-
ness to operate?
What laws, regulations, rules or standards
apply to the advisory business?
ORGANISATIONAL CONTEXT
The organisational context includes the way
the advisory business is structured and how
it operates, including the extent of operative
knowledge advisers have of their relevant ar-
eas of responsibilities. This context may be
technical or non-technical. It includes the ad-
visory businesses' aims, activities, structure,
membership and method of operation. These
are some questions to ask:
What are the aims and objectives of the ad-
visory business?
What is the core activity? Who is involved
both internally and externally?
What equipment does the business have
and/or use?
RISK MANAGEMENT CONTEXTThe risk management context includes the
nature of operational, technical and regulato-
ry frameworks and what is being done. Some
questions to ask include:
What is the advisory business currently do-
ing in terms of risk management, either for-
mally or informally?
Is the advisory business insured?
Is the advisory business a sole practitioner
or does it have a legal persona?
The goals, objectives, values, policies and
strategies of the business and how advisers
contribute to these are also important consid-
erations that help define the criteria by which
decisions are made about the acceptability of
risks, the form and basis of controls, and the
management options available.
Within this overall risk management con-
text, it is also important to identify the strate-
gic and organisational functions, such as:
business management
economic circumstances
corporate governance
commercial and legal
financial management
human resources
technology and systems
unnatural or natural events.
Once these functions have been identified,
risk management policies and strategies can
be considered.
RISK MANAGEMENT POLICY AND STRATEGY
To achieve an effective risk management sys-
tem, it is essential for advisers to develop a
clear policy statement, which should:
outline the scope and process
Before documenting a RM plan, advisers should first place the risks
they face in context, by understanding the objectives of their business
within the strategic and organisational environment. BY JOHANN MAREE
BROKERS CORNER
Preparing to document theRM plan
reaffirm commitment to resources
clarify roles and responsibilities
define documentation and report-
ing requirements.
This policy sets the framework for the risk
management strategy and applies to all ar-eas and entities within the business. Once
the context and policy framework is clearly
established, developing a risk management
plan becomes easier. The risk management
strategy should be integrated with other plan-
ning and management activities.
RISK MANAGEMENT RESPONSIBILITIES
All advisory business owners and staff are
responsible for:
developing and implementing the risk
management plan
reporting serious risk exposures and
all serious incidents to the advisory
business owner
reporting annually on the status of risk
management actions to the owner and the
compliance practitioner
assisting in identifying potential risk expo-
sures and for developing and implement-
ing risk mitigation plans for unacceptable
exposures, which may include:
preventing potentially damaging events
through minimisation strategies
providing decision makers with risk man-
agement information to assess acceptable
risks
where appropriate, transferring risk to
third parties through insurance and
contractual arrangements.
Other stakeholders may be invited to assist
to identify potential risks and suggest any
proposed mitigation.
JOHANN MAREE
Maree is the co-founder of both the Institute of Practice Management and Myriad
Planning Solutions, which develops rules-based integrated business solutions for
financial advisers.
Dont miss the next article in our Brokers
Corner series!
The next article will look at how to identify anddocument the risks advisers face.
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Succeedingin adrastically
COVER STORYGENERAL INSURANCE ENTERPRISE RISKFeb10
The financial crisis has al-ready proved to be a watershed for the insur-
ance industry in many parts of the world.
The expectations of customers, investors,
governments and regulators from the in-
surance industry are changing rapidly andpervasively and as such, the environment
is expected to evolve at a rapid pace over
the next two to three years, ruling out any
return to the relative stability and certainty
that preceded the crisis.
This was revealed by the Pricewaterhouse-
Coopers (PwC) The Day After Tomorrow for
Insurance report, which gauged how the
global slump is reshaping the insurance in-
dustry and highlighted key developments
that are likely to affect particular segments
and geographical markets.
While the response related to the market
downturn has varied from country to coun-
try, there is an overall feeling of uncertainty
that defines the industry, says Victor Mu-
guto, Southern African insurance leader at
PwC.
Even companies that did not re-
quire bailouts have responded to
government requests to cut costs and spend
more effectively.
It is clear that all insurers across the world
will be required to transform their business
practices to suit the changing sector. This
shake-up will challenge the competitive rel-evance of some insurers. However, it also
offers agile and farsighted firms a once-in-
a-generation opportunity to catapult them-
selves to the front of what will be a very
different racing order within many geo-
graphical markets and classes of business.
CHANGING CUSTOMERS
Customers faith in financial institutions has
waned, internationally. As capital disap-
peared from the markets, customers have be-
come more cautious, preferring to hold on to
their cash. Those who are prepared to invest
their money are starting to favour simpler
and less risky products.
What customers demand from savings
and investment products and how they
want to buy them will take a new direc-
tion within many territories, with compa-
nies that are slow to catch on, becoming
increasingly marginalised.
Clearly, customers will eventually start
spending, but will search for more effec-
tive risk protection. The key question is,
on what terms will customers choose to re-
engage with insurers and how may product
and distribution strategies need to change
to encourage them back into the market?
says Muguto.
Whats more, consumer demand profiles
are also changing in South Africa. Like their
counterparts in the developed world, the lo-
cal insurance industry must react to these
changing customer needs. Customers are be-
coming more discerning and better able to
make informed choices.
The current insurance landscape is drastically different compared to the
market before the global financial crisis, enabling some insurers to pull
ahead from their competitors and leaving others behind.
INDUSTRY INSIGHT
In addition, local insurers must also ad-
dress the perceptions of the insurance indus-
try in the low-income market. The challenge
for the industry is perhaps greatest in those
market segments that have no awareness of
insurance or see no benefit in it. Interven-tions to educate, inform and reach potential
consumers are important and may present
viable opportunities for local insurers.
IMPACT OF DISTRIBUTION CHANNELS
The disillusionment created by the crisis in
many of the more developed markets could
affect channel preferences. In Germany and
Switzerland, for example, there has been
strong unease about the charges and plum-
meting returns from many annuities. This
is leading to a growing switch from tied to
independent advisory channels, as custom-
ers seek more thorough and unbiased advice
about which products match their risk ap-
petite and demand profile. This echoes de-
velopments in the US in the1990s, and in
the UK in 2000 and after. In some countries,
Hong Kong, for example, buying insur-
ance through strong and trusted banks is
becoming increasingly popular once again.
Companies will naturally need to keep their
ears to the ground and adapt their chan-
nel strategies to what could be rapidly
changing preferences.
INCREASING REGULATORY INTENSITY
Under pressure from governments, supervi-
sion in financial services will be more intense
and regulations will be more subject to na-
tional priorities in their interpretation and
application. Some countries are going the
extra mile in developing tough regulatory
regimes with a focus on governance and risk
management. As a member of the Interna-
tional Association of Insurance Supervisors,
South Africa toois expected to
follow its lead.
As such, we can
anticipate an
GREATERTRANSPARENCYANDCOMPARABILITYOFFINANCIALANDRISK
DISCLOSUREWILLBECRITICALINGAININGACCESSTOTHELIMITEDSUPPLY
OFAVAILABLECAPITAL. VICTOR MUGUTO, SOUTHERN AFRICANINSURANCELEADER, PWC
12
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GENERAL INSURANCEENTERPRISE RISKFeb10
transformedinsurance sector
Successful administration, prompt & efficient claims management and world-class customer service
determines both the market success and member satisfaction of any given medical fund.
To find out more about SMS flawless administration
and dedication to service excellence contact
(011) 353-0048 or visit www.sechabamedical.co.za
Since inception in 1978, Sechaba Medical Solutions
(SMS) has positioned itself as one of the best
medical fund administrators in terms of IT systems,
service and empowerment in South Africa today.
Its strong empowerment history gives SMS the
edge as it understands the healthcare needs across
South Africas racial and cultural diversity.
Its IT and service strengths have ensured its
flexibility to adapt to the demanding legislative
healthcare requirements that have evolved with
time. This powerful combination ensures that
SMS is well placed as a key player in the current
healthcare environment.
An authorised financial services provider
increase in supervision, with increased focus
on solvency, governance, consumer protec-
tion and risk management.
INVESTORS DEMAND RISK MANAGEMENT
A common thread is the emphasis on strong
ERM. he pursuit of innovation and capital ef-
ficiency has given way to focus on stability
and risk management.
Analysts and investors require a more sys-
tematic approach to effective risk manage-
ment. Greater transparency and comparabil-
ity of financial and risk disclosure will becritical in gaining access to the limited sup-
ply of available capital.
Market confidence also continues to be un-
dermined by the absence of a relevant and
globally consistent insurance accounting
standard and lingering concerns related to
consistency of embedded value methodolo-
gies and assumptions.
GOVERNMENT INFLUENCE
Although those governments that have bailed
out insurers are eventually likely to divest
their direct holdings, their influence across
the sector will continue. Other governments
however may continue to offer substitutes to
insurance, such as trade and credit schemes
and being the insurer of last resort.
This could result in competitive distor-
tions and impede market development and
once in place could be difficult to with-
draw. On the other hand, governments
that have recapitalised parts of the insur-ance sector may insist that taxpayers are
given a more favourable deal from the
insurance industry.
KEY DEVELOPMENTS AND THEIR STRATEGIC
IMPLICATIONS
Continued uncertainty involving de-
mand, inflation, stock market performance
and budget deficit scenarios will plague
the market.
The reshaped environment will present both
transformational opportunities and signifi-
cant threats for businesses that fail to antici-
pate and adapt to the changes ahead.
A number of short-term themes have also
been sparked by the financial crisis. Height-
ened risk concerns and the need to rebuild
balance sheets have forced many insurers to
follow more conservative investment paths.
Firms that have been leading the way in driv-
ing home effective risk management prior tothe crisis have already been implementing
this strategy.
Statistics show that the economic down-
turn has been tough on our local insurers.
The slowing economy has led to, among oth-
ers, rising claims. Local insurers should view
this time as a period of challenges and op-
portunities.
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INDUSTRY INSIGHT
2010 chal lengesandopportunitiesEnterprise Risk asked the short-term insurance industry leaders to share
their insights regarding the challenges and opportunities 2010 will bring.
Johnny Symmonds, MD,
Lombard Insurance
Single greatest challenge:
There are a number of significant
challenges facing the industry.
The first and probably the most
important is attracting and retaining
quality skills. Secondly, regulation
is becoming increasingly complex,
while regulatory authorities
are becoming more hands on.
In addition to industry-specific
regulation, there is an increasing
interrelationship between various
new acts, and future regulations
such as financial condition reporting
and the possible 'green' legislation
will add to the complexity. Global
warming, its impact on weather
patterns and the associated
increase in insurance losses, is
another great challenge facing the
industry. Lastly, the industry faces
constraints in terms of reinsurance
capacity, both in terms of capital
available at a catastrophe level and
in particular the capital available for
guarantee classes.
Greatest opportunities: The growth
in the middle class, traditionally a
major market for insurance products,
is growing, creating opportunities for
the industry. In addition, we have a
large untapped, uninsured market,
which holds great opportunities for
those insurers who can find the
right solutions to product pricing
and market access. The recent
credit crunch has also createdopportunities, particularly in the
credit risk sector, by highlighting the
vital importance of managing
credit risk.
Barry Scott, chief executive,
SAIA
Single greatest challenge: The
biggest challenge for short-
term insurance generally, and
SAIA specifically, will be to
draft and implement a holistic
and comprehensive strategy to
address motor insurance. Such
a strategy will not only have to
address the risk, but also the cost
of motor insurance claims to keep
motor insurance affordable and
motor insurance as a business
class sustainable.
Greatest opportunities: The
market has yet to tap into the
low-income market although a
few of our members have startedexploring possibilities in this
market with low-key activities.
Companies which use the lessons
learnt from mistakes made in
the micro-insurance space, and
innovatively enter the untapped
market in the near future, will
reap unexpected benefits. The
SAIA financial literacy consumer
education initiatives planned for
implementation in 2010 should
enhance opportunities for short-term insurance companies with
appropriate products.
Jurie Erwee, Alexander Forbes
risk and insurance services
Single greatest challenge:
Those who attract and retain the
best talent will reap the benefits
as new opportunities present
themselves. Advancing technology,
environmental risks and corporate
governance will dominate
boardroom discussions in 2010,
presenting opportunities for risk
advisors and the insurance market
as institutions and individuals
seek enterprise-wide solutions to
emerging risks.
Greatest opportunities: More
companies will be adopting a
'high-risk, high-reward' approach
in seeking profits from emerging
markets, including Africa. Thisprovides exciting opportunities for
South African-based risk advisors
and carriers with representation
and experience of doing business in
Africa. South African insurers have
been slow to expand into Africa but
expect this to change as the focus
on investment opportunities in
emerging markets and particularly
opportunities in the financial services
arena will increase in 2010.
Guy Scott, CEO, Aon RiskServices
Single greatest challenge: Perhaps
the most difficult risk management
issue is ensuring that organisations
remain committed to established,
effective risk management
strategies. Risk control efforts
should not be ignored for the sake
of immediate expense cutting. A
comprehensive and successful
response to this global economic
downturn requires the consistent
application of excellence in all
facets of risk management.
Greatest opportunities: Those
organisations who have successfully
weathered the storm with
stringent expense management
and successful talent retention
strategies, coupled with continued
investment in innovation, will benefit
from the flight to quality in terms of
the consumer behavioural change.
Efforts should be focused on quality,as there is a higher expectation of
value for money from consumers.
A constant investment in new ideas
and solutions is paramount in the
ENTERPRISE RISKFeb10SHORT TERM
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IN-HOUSE
COUNSELUnderstanding YOUR role and strengthening yourcompanys protection against legal liabilityConference highlights and interactive sessions include:
Discussing the Sections o the Companies Act that will be afected by new dratingAligning legal policy with the business bottom-lineDiscussing the uture o risk and corporate governance compliance as a unction o the In-House CounselHighlighting the current corporate case lawMastering your contract negotiation and drating skillsManaging the use o your external advisor and controlling the cost to companyDening the In-House Counsel role in accountability to ethical business practice
Pre and Post Practical Conference
Workshops:
Practical techniques or incorporating theCompanies Bill into your policies and proceduresFacilitated by:Jacques Peters,Director, Jacques PetersConsulting CCDate: 15 March, 2010
Mastering your contract negotiationand drating skillsFacilitated by: Gavin Weiman,Attorney,Weiman Consulting
Date: 18 March, 2010
T
T
T
T
T
T
T
15, 16, 17 &18 March 2010The Wanderers Club,Illovo, Johannesburg
Fax the below form to 011 880 6789 or for more information call 011 771 7000 or visit www.iir-conferences.co.za
Title: __________________ Name: ________________________________________________________________________________________________________
Company: _____________________________________________________________________________________________________________________________
Job title: ______________________________________________________________________________________________________________________________
Tel no: ____________________________________________________________ Fax no: ____________________________________________________________
Email address: _________________________________________________________________________________________________________________________
Please send me further information about In-House Counsel P3122 ER
t: 011 771-7000 | e: [email protected] | w: www.iir.co.za/inhouse
Researched and Developed by:Strategic Partner: Media Partner:
8/9/2019 EntRisk Feb10
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creation of competitive advantage
same old, same old is just not
enough anymore.
Paolo Cavalieri, chairperson,
Etana Insurance
Single greatest challenge: Our
biggest challenges as an industry are
finding creative and effective ways ofcontending with economic pressure
for ourselves and our clients; finding
ways to progress meaningfully in
areas such as people and leadership
development; and attracting top
talent, so we will have strong and
skilled people to move forward.
Greatest opportunities: There has
never been a more critical time for
brokers to demonstrate their value
to clients in ensuring all avenues
of risk are adequately covered,
without paying for insurance they
dont need. The insurance industry
needs to be innovative in supporting
BBBEE goals and has opportunities
to use its personal connections with
millions of policyholders to make
meaningful contributions in the area
of consumer education. We also
all have opportunities to sensitise
government and consumers to risk
management.
Michael Blain, CEO, Centriq
Insurance
Single greatest challenge: The
new binder regulations and medical
demarcation regulations will be the
most keenly watched development
in the first half of 2010. The second
half of 2010 will see South Africa
focusing on its many challenges,
especially how to capitalise on and
maintain the economic momentum
of the World Cup. The insurance
industry will continue focusing on
motor-loss ratios and the cost of
motor vehicle repairs to restore
profitability; risk management; risk
surveys and risk premium rates.
Another challenge is the ageing
public infrastructure and lack of
maintenance owing to the economic
environment and the consequent
impact on claims.
Greatest opportunities: Companiesthat are flexible and entrepreneurial
with solid shareholders and the best
skills will survive the consolidation
among insurers and underwriting
agencies in the next 18 months.
Brand Pretorius, CEO,
Momentum Short-Term
Insurance
Single greatest challenge: The
challenge for insurers will be to
manage the expected increase in
costs, without transferring all of the
cost pressures to the consumer.
The successful insurers in 2010
will be those who are the most
accurate in determining the risk
profile for each individual client and
charging the appropriate premium.
This requires a greater emphasis
on risk management and improved
harnessing of technology for greateroperational efficiency.
Greatest opportunities: Indications
are that a turnaround in the economy
can be expected during 2010. This
could result in growth opportunities
for the industry in general.
Keith Kennedy, MD, Mutual &
Federal
Single greatest challenge: Growth
in the short-term insurance industrywill be challenged by the state of
the economy. The weather is also a
wild-card factor for the short-term
insurance industry, becoming more
unpredictable over the years, and
claims relating to such events are
more frequent and larger.
Greatest opportunities: We should
see some buoyancy in the economy
in the first half of the year leading
up to the 2010 World Cup. Many
businesses will require various forms
of cover during this period and we
should see an increase in policies
written.
Pierre Geyer, head: broker
division, Hollard
Single greatest challenge: The
stressed economy will push clients
to seek more perceived cost-
effective or alternative insurance
solutions. The anticipated changes
in legislation, particularly related tobinder agreements, may negatively
affect client service and operating
costs for intermediaries. The
increasing supply-chain costs of
particularly motor-vehicle spare parts
and autobody repairs remain a cause
for concern in terms of claims costs.
Greatest opportunities: The Soccer
World Cup 2010 will have a hugely
positive impact on the economy,
which will spill over to the insurance
industry. Brokers need to examine
the needs of all their clients with
this in mind. With the new FAIS
requirements, a number of non-
compliant brokers will exit the market,
creating acquisition opportunitiesfor other brokers. With general
service levels deteriorating in certain
insurance channels, the broker will
also remain vital to their customers.
Ian Kirk, CE, Santam
Single greatest challenge: The
domestic economy is starting to show
early signs of recovery, but such
recovery will be slow a scenario
that requires focused attention
on the management of risk. The
impact of climate change must
feature prominently on the industry
agenda. 2010 will also see clients
making greater demands for quality,
innovation, service and appropriate
costs. Santam further expects to
see a continuation of mergers and
acquisitions in the intermediary space.
Greatest opportunities:As with
2009, 2010 will be challenging for
the industry. All players will need tostay on top of their game, but these
challenges inevitably will create
opportunity. 2011 will likely be the
year of recovery for our industry.
ANOTHERCHALLENGE
ISTHEAGEINGPUBLIC
INFRASTRUCTURE
ENTERPRISE RISKFeb10SHORT TERM
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Companies are well advised to takeup recall cover or increase their existing cover be-
cause the Consumer Protection Bill has been promul-
gated into law. In more mature markets like the UK
which have similar laws in place, an increase in over-
all product recall of 125% between 2004 and 2007 hasbeen seen. With regard to non-food products, a mas-
sive 894% rise was recorded between 2004 and 2007,
explains Keith Marshall, regional manager, liabilities
group, Africa region of Chartis South Africa.
Certain sectors will be at higher risk because of
the implementation of the CPA than others, and the
controls required will differ accordingly. These risk
ratings and controls are detailed in table 1.
Retailers will be more responsible for the products
PRODUCT RECALL
BewaretheCPA...With the Consumer Protection Act coming into force shortly, companies
need to understand the impact it will have on their product recall
insurance. BY KEITH MARSHALL - CHARTIS
they sell following the implementation of the Con-
sumer Protection Act (CPA), as consumers will be in
a position to return unsatisfactory goods to the re-
tailer as opposed being restricted to seeking recourse
solely against the manufacturer, explains Marshall.
This means retailers can be held as accountable asa manufacturer the middle man status has been re-
moved. Retailers should advisably seek to ensure that
their suppliers have recall plans in place along with
full-blown recall insurance. This is due to the fact that
consumers are now in a position to hold the retailer as
accountable as the manufacturer.
GET THE COVER NOW
Marshall says that an increase in recall cover pre-
miums is likely since there are more rights of re-
course for the consumer as is intended by the leg-
islation. This is likely to translate into more claims,
increased legal action, and therefore higher premiums
and/or deductibles.
In terms of the underwriting criteria, the retailer
and a manufacturer will now be rated equally as the
exposure to claims increases with the consumer hav-
ing access to greater routes of recourse. There is a
potential for retailers to carry even greater exposure
than a single manufacturer, since the retailers will sell
multiple products from a variety of manufacturers.
In a nutshell, buying cover now would be cheaper
for two reasons, notes Marshall. Firstly, if we con-
sider the trends evident in the more mature markets,
we know that a spike in claims is inevitable. Secondly,
forming a relationship with an insurer now enables
the insurer to have a better understanding of what
the insureds activities are and what the specific risks
are. This translates into more favourable terms, as the
insured is not gauged against industry standards. For
instance, when dealing with a high-hazard industry
such as the tyre industry, an insured in such an indus-
try that has had a quantifiable claims history (prefer-
ably a good claims record) in say over five years, will
be in a more favourable position.
ISSUES TO CONSIDERThere are a few factors that companies should be con-
sidering in light of the implementation of the CPA
renewing or taking out products recall insurance as
detailed in table 2.
SECTOR RISK RATING CONTROLS REQUIRED
Retail and
distribution
High Supply chain management including supplier
insurance
Contract certainty between suppliers and consumers
Complaints handling processes and proceduresProduct recall plans, processes and procedures to be
set up by the insured with loss controls assistance
where applicable.
Manufacturing Medium to
high
Supply chain management including supplier
insurance
Contract certainty between suppliers and distributors
Increased quality control on product functionality,
safety, education in the form of manuals and labelling
Complaints handling processes and procedures
Product recall plans, processes and procedures
Services Medium Contract certainty between suppliers and consumers
Complaints-handling processes and procedures
TABLE 1 Risk rating
and controls
TABLE 2 Liability
INSURED INSURER
Strict liability resulting in increased claims
and settlements.
Increased limit as per exposure to risk of
liability.
Increase costs in the form of:
quality control
supply chain management
vetting of suppliers
claim payments
counter claims against suppliers.
Increased information requirements:
loss control
processes, procedures, controls and
monitoring systems.
Insurance packaging:
warranty and inefficacy covers
increased limits for financial loss.
Review information provided and provide
efficacy and/or financial loss cover on a
selected basis subject to specific terms and
conditions.
20
ENTERPRISE RISKFeb10SHORT TERM
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COVER STORY
Featuring key presentations fromthe following experts:
Examine these hot topics!
Prepare your organisation or the new
17 & 18 March 2010
Hyatt Regency, Rosebank,
Johannesburg
Examine these hot topics!
How to process personal inormation incompliance with the new bill
Find the balance between protection o personal
inormation and legal requirements o access toinormation
How will the new bill afect your directmarketing?
International trends and strategies: What can youlearn?
Managing data throughout the organisation:Evaluation o processes and procedures
Featuring key presentations fromthe following experts:
Iain Currie, University o Witwatersrand
Anneliese Rose, UNISA
Warren Wertman, Bowman Gilfllan
Tim Hanlon, Strategic Management Services
Graham Dominy, Department o Arts andCulture
TO REGISTER:
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Fax the below form to 011 880 6789 or for more information call 011 771 7000 or visit www.iir-conferences.co.za
Title: __________________ Name: ________________________________________________________________________________________________________
Company: _____________________________________________________________________________________________________________________________
Job title: ______________________________________________________________________________________________________________________________
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Please send me further information about Protection of Personal Information Bill P3125ER
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COVER STORY ENTERPRISE RISKFeb10LONG TERM
22
Leon Campher, CEO,
Association for Savings and
Investment South Africa
(ASISA)
Lessons learnt from 2009:2009,
although tough, proved to the
savings and investment industry,
its regulators and our policy maker,
that we are largely on the right track
with our approach to regulation
and the way we do business. We
can be proud of our resilience
during global financial market
crisis the credit goes to a strong
regulatory framework overseen by
the Financial Services Board and the
largely prudential management of
businesses by the private sector. As
an industry, we were also surprised
by the faith displayed by our investors
as inflows into the savings and
investment industry remained largely
positive throughout the year.
Strategic priority for 2010: A key
strategic priority is to partner with
government and other stakeholders
At the of 2009, Enterprise Risk spoke to the
captains of the life industry about lessons learned in
2009 and strategies for 2010.
INDUSTRY INSIGHT
Lessons from the past,
priorit ies for the future
on the South African incorporated
strategy, promoting South Africa asthe economic gateway to Africa. The
savings and investment industry, as
represented by ASISA, must deliver in
terms of its continued relevance and
sustainability as the custodian of the
nations savings by growing a strong
public/private partnership based
on trust.
Steven Braudo, MD,
Liberty Life
Lessons learnt from 2009: 2009
reemphasised the fact that without
a happy and satisfied customer,
the entire industry is at risk. Harsh
economic times often force one to
reflect and take stock, and that hascertainly been true for us. We have
always known that the customer is
at the core of everything we do, and
2009 reaffirmed the importance of
resilience and flexibility to assist our
clients in tough times.
Strategic priority for 2010:
Without a doubt, one of our greatest
strategic priorities involves keeping
the customer at the centre of every
business strategy and decision. This
will involve not only bringing new
customers into the Liberty family, but
also retaining our existing customers
by remaining relevant and adding
value to their lives. I speak for the
Liberty team when I confidently say
that we are ready, willing and able
to shake things up and exceed the
highest expectations that we have set
for ourselves.
Phillip Matlakala, CEO,
Metropolitan Retail
Lessons learnt from 2009: Our
better-than-expected persistency
levels affirmed that our customers
are beginning to understand
the value of their investments
perhaps a sign of a shift towards
a savings culture? Legislative
reform has changed the way we
do business both operationally
and in principle with huge cost
implications. Intermediaries were
also affected with stringent FAIS
regulations forcing out those who do
not comply. This, coupled with the
fear of new graduates pursuing a
dying profession has created a skillsdearth.
Strategic priority for 2010: The
focus for 2010 will be on further
optimising the way we do business,
leading towards sustainable practices
that place the customer at the core.
We will continue in our commitment
towards improving financial literacy
by upskilling our intermediaries.
We anticipate that implementing
legislative changes will continue
throughout 2010. Our focus will be
on the things within our control, such
as active management, competitive
and appropriate products and
improving the quantity and quality of
our human resources.
Nicolaas Kruger, CEO,
Momentum group
Lessons learnt from 2009: Threelessons deserve mention. The
value of effective and appropriate
risk management is the first
important lesson. It is critical for
KEEPINGTHECUSTOMER
ATTHECENTREOFEVERY
BUSINESSSTRATEGY
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Gain essential insights which will help
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New Companies Act!
Get to grips with the implicationsand impact o the New CompaniesAct and compile your customised
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2 & 3 March 2010
Wanderers Club, Illovo,Johannesburg
NewCompanies Act
Masterclass 2010
Fax the below form to 011 880 6789 or for more information call 011 771 7000 or visit www.iir-conferences.co.za
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life insurance companies to have
an in-depth understanding of
how their business will react to
different risks. Secondly, business
diversification provides protection,
as different business units
react differently to challenging
conditions. Finally, the past year
instilled a greater appreciation for
South Africas financial regulatory
landscape, where measures such
as exchange controls shielded
us from the worst of the global
financial crisis.
Strategic priority in 2010: I think
discussions around retirement
reform will accelerate in the next
year. Industry has a vital role toplay in shaping South Africas
future retirement landscape and
this will surely be a focus area
for life insurers during 2010.
As important is the debate and
consultation around the National
Health Insurance. Momentum
looks forward to working with
industry and government to
make meaningful contributions to
establishing a sound foundation
for an inclusive financial
services industry.
Selwyn Kahlberg, MD,
Alexander Forbes Life
Lessons learnt in 2009: Get
the basics right! This means a
strong back office, sound claims
management processes and a
great team of people threefactors that saw Alexander Forbes
navigate the recession with
success. A strong back office
ensures clients are happy and
that management can access
the numbers (sales volumes,
cash flow, solvency) quickly
and confidently. Sound claims
management processes protect
against the increases in both
fraudulent and disability claims. A
great team of people will carry a
company through almost
any situation.
Industrys strategic priority for
2010: There are two priorities
for 2010 firstly, maintaining
solvency and profitability, while
being prepared for the next shock
to the system and secondly,
achieving growth in a highly
competitive space. The challengewill be to create meaningful
product differentiation while
providing a value-for-money
proposition. The quality of the
brand will play a large role in
achieving success.
Herschel Mayers, Discovery
Life and Invest
Lessons learnt in 2009: It is
crucial to ensure that the business
is built on quality foundations.
The products offered have to
meet customers needs and
requirements in a dynamic, rapidly
changing environment. If the
right building blocks are in place,
growth, investment and positivity
is required, especially in tough
economic times. These are the
ingredients for ultimate success
when the economic cycle turns forthe better.
Strategic priority for 2010: Our
priority in 2010 will be to continue
to grow and invest in the business
in South Africa, and to ensure that
Discovery Life is at the forefront of
innovation, exhibiting leadership
in the life assurance industry. We
will also expand our operations
and success in the UK.
Liz Lambrechts, chief
executive, Sanlam Personal
Finance
Lessons learnt from 2009:
2009 clearly showed us how
important it is to have a visionary
long-term strategy for resilience
in good and bad times, and that
the courage to implement that
strategy, even in challenging
times, is crucial for survival.
Five years ago, the Sanlam
group embarked on a strategy to
diversify and place client centricity
at the heart of our business. This
strategy proved extremely resilient
and allowed us to perform well
this year.
Strategic priority for 2010:
Our greatest strategic priority
for 2010 is to reestablish the
trust of consumers and change
consumer behaviour. Consumers
are sceptical about both the
performance and the ethics ofour industry, and have a more
sophisticated understanding of
financial solutions. As such, they
now demand transparency, fair
treatment and better service.
The industry has gone some way
towards addressing such issues
but much remains be done in
2010 to raise the image of the
financial services industry and
position it as genuinely
client centric.
David Price, MD, Liberty
Corporate
Lessons learnt from 2009:
Liberty Corporate has had a
successful year, despite the tough
environment. As a business, we
have resolved to harness the
pressure of 2009 as a positive
catalyst for change. We have been
honoured to be recognised for our
efforts by winning two industry
awards: the 2009 FIA Employee
Benefits Product Supplier of the
Year Award and the 2009 PMR
(Golden Arrow) Award for Large
pension fund administrators and
product providers insurers.
Strategic priority for 2010: The
challenge in 2010 is to remain
focused on delivering on our
promises and building on a very
strong base in what is a constantly
changing environment. Top of
mind is making the customerjourney a seamless, pleasant
experience, and ensuring that we
are the first choice of advisers
across the field.
PRODUCTSOFFEREDHAVE
TOMEETCUSTOMERS
NEEDSANDREQUIREMENTS
COVER STORY ENTERPRISE RISKFeb10LONG TERM
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The Commission of Employment Eq-uity Report 2008 2009 from the Department ofLabour indicated that the percentage of permanently
employed people with disabilities in the formal sec-
tor has reduced from 1% to 0.7% compared with the
previous year, despite targets set by the employment
equity regulations.
People with disabilities experience high unemploy-
ment levels and often remain in low-status jobs. Ig-
norance, fear and stereotyping contribute to possible
unfair discrimination against people with disabilities
in society and in employment. This unfair disability
discrimination is perpetuated in many ways. There
are many unfounded assumptions about the abilities
and performance of job applicants and employees
with disabilities. Workplaces are sometimes inacces-
sible and training is not always appropriate for peo-
ple with disabilities.
FAR-REACHING BENEFITS
People with disabilities can contribute their skills and
abilities to the economy and society if employers re-
move unfair discriminatory barriers and provide rea-
sonable accommodation. The cost of claims on public
social security and occupational benefit schemes can
be reduced if employees with disabilities are retained
at work.
In practice, there is actually a lot that companies
can do accommodate disabled employees and ben-
efit from their skills and abilities, while meeting
legislative targets.
INSURANCE SOLUTIONS
For example, it is prudent for any employer to pro-
vide insurance cover for unplanned events such as
employees becoming disabled due to illness or ac-
cident. This would make employees eligible for in-
sured benefits if they were not able to perform theirregular occupation because of a disability resulting
from illness or accidental injuries. Group disability
insurance policies provide benefits on an income re-
placement basis or payment of a lump sum benefits
In practice, companies can do a great deal to accommodate disabled
employees and benefit from their skills and abilities while meeting
legislative targets. BY ANTON ENGELBRECHT, ALEXANDER FORBES HEALTH
DISABLED EMPLOYEES
Reasonable accommodationin the workplace
in conjunction with retirement benefits from the re-tirement fund.
As such, the provision of disability insurance by
employers should be viewed as a part of a disability
risk management strategy in the workplace.
REGULATORY ISSUES
Historically, employers accepted the insurers deci-
sion in terms of the validity of the disability claim
submitted without applying the provisions stipulated
in Schedule 8 of the Labour Relations Act (LRA).
These provide a clear procedure requiring the em-
ployer to investigate any medical incapacity of an
employee prior to termination of the employee-em-
ployer relationship with an intention of retaining
the employee in his or her occupation or even a dif-
ferent occupation as far as reasonably possible.
Furthermore, the Code of Best Practice on Key
Aspects of Disability in the Workplace issued by
the Department of Labour provides a guideline for
employers, employees and their representatives to
develop, implement and refine disability equity
policies and programmes to suit the needs of their
respective workplaces.
A number of initiatives can be undertaken by em-
ployers not only to comply with the requirements of
the Code of Best Practice but also become the em-
ployer of choice for persons with disabilities.
Designing a strategy that would achieve compli-
ance with the Code of Best Practice as well as assist
companies become an employer of choice would in-
clude the following objectives:
ensure all human resource policies comply with
relevant legislation, i.e. Employment Equity Act
and the abovementioned Code of Good Practice
create an environment that is disabled-friendly,
physically accessible and socially accommodative
actively drive to recruit and select suitable disabledcandidates for all vacancies and to rehabilitate and
train employees who become disabled
provision of further training and career advance-
ment opportunities for persons with disabilities.
ANTON
ENGELBRECHT
Engelbrecht (BMedSci,
BSc (hons) Bio
Systems Cum Laude,
MBA) is a business
development andstrategic consultant
at Alexander Forbes
Health.
ENTERPRISE RISKFeb10 EMPLOYEE BENEFITS
25
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The main purpose of an RA fund is toprovide a life annuity upon retirement of a member of55 years or older, or annuities for the dependants or
nominees of deceased members.
In order to encourage saving for retirement, the In-
come Tax Act allows for deductions from a taxpayers
income, up to certain limits, for contributions made to-
wards retirement savings, explains Navin Ramparsad,
head: legal and compliance at Momentum Wealth. Typ-
ically, clients can claim a deduction equal to a maximum
of 15% of non-retirement funding income; or R1 750; or
R3 500 less allowable pension fund contributions.
In terms of current legislation, contributions in excess
of the allowable deduction will be taken into account
at retirement and potentially increase a clients tax-free
amount. It is advisable to contribute as much as possible
towards retirement savings, but at the very least clients
should endeavour to contribute at least the maximum
allowable deduction towards retirement, as this will also
assist in minimising their tax liability.
Erica Stuart of Liberty Group Advisory Services elabo-
rates: If a client contributes a R100 000 lump sum
into his/her retirement annuity then he/she would
qualify for a deduction. SARS will apply the formula
to determine what the tax deductible amount would
be. It is important to note that if an employee
qualifies for a tax deduction now, these
amounts will be deducted from his/her
tax-free amount at retirement.
Upon retirement, up to one-third
of the benefit may be taken as a lump
sum. Up to R300 000 of the total lump
sum received from pension, provident
and RA funds during a persons life-
t
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