Un­der­writ­ing in­dus­try in Africa

RISKAFRICA Magazine - - CONTENTS - Hanna Barry

Un­lock­ing Africa’s undis­puted eco­nomic po­ten­tial re­quires in­fra­struc­ture. In­ad­e­quate in­fra­struc­ture is con­sis­tently raised as a ma­jor con­straint to do­ing busi­ness on the con­ti­nent and a key fac­tor in shap­ing its fu­ture. As dif­fer­ent types of in­dus­try de­velop through­out the con­ti­nent, niche in­sur­ers will play an in­creas­ingly im­por­tant role in pro­vid­ing the risk man­age­ment strate­gies and so­lu­tions to nur­ture this growth.

“Al­though the fund­ing gap has be­gun to close in re­cent years, un­lock­ing the con­ti­nent’s vast eco­nomic po­ten­tial re­quires new projects and pro­grammes, with the need par­tic­u­larly acute in trans­port, power and com­mu­ni­ca­tions. Do­ing this re­quires strong po­lit­i­cal lead­er­ship, a greater role for the pri­vate sec­tor and di­verse sources of fund­ing. Pol­icy mak­ers and the pri­vate sec­tor need to do more work to­gether, with po­lit­i­cal lead­ers cre­at­ing a reg­u­la­tory en­vi­ron­ment that will en­cour­age pri­vate sec­tor in­vest­ment,” it was noted at the re­cent Ernst & Young Strate­gic Growth Fo­rum Africa. The event saw govern­ment and busi­ness lead­ers from across the globe con­verge on Cape Town, South Africa to dis­cuss Africa’s in­vest­ment po­ten­tial and hear from busi­nesses that have achieved con­sid­er­able suc­cess on the con­ti­nent.

RISKAFRICA caught up with some of South Africa’s ma­jor un­der­writ­ing man­age­ment agen­cies (UMA) that have launched op­er­a­tions in the rest of Africa. They told us about their op­er­at­ing mod­els on the con­ti­nent and the unique chal­lenges and risks they are ex­posed to.


“Glob­al­i­sa­tion and the re­sul­tant com­pe­ti­tion from for­eign con­glom­er­ates make en­try into new African mar­kets any­thing but a slam­dunk,” says Stef The­o­fani­dis, man­ag­ing di­rec­tor of Hol­lard Cor­po­rate Mar­kets. “Mar­ket dy­nam­ics and specifics need to be care­fully con­sid­ered be­fore en­ter­ing into in­sur­ance ven­tures in Africa.” Sev­eral spe­cial­ist UMAs of South African short-term in­surer Hol­lard have been pro­vid­ing prod­ucts and so­lu­tions to key African mar­kets since 2005. In par­tic­u­lar, Scin­tilla (en­gi­neer­ing and con­struc­tion); As­tra (marine); FASA (per­sonal ac­ci­dent); and Oo­jah (travel) have es­tab­lished track records in th­ese coun­tries. More re­cently, spe­cial­ist li­a­bil­ity prod­ucts (D&O, PI and PL) and con­struc­tion guar­an­tees have been in­tro­duced in th­ese ter­ri­to­ries.

“Hol­lard has a strong foot­print in the SADC re­gion, hav­ing crafted its vi­sion of pur­su­ing lo­cal li­cences and busi­ness op­por­tu­ni­ties in Africa more than 10 years ago,” says The­o­fani­dis. As a re­sult, it has de­vel­oped sig­nif­i­cant ca­pa­bil­ity in Namibia, Botswana, Mozam­bique and Zam­bia by part­ner­ing with and grow­ing lo­cal ex­perts and de­vel­op­ing key re­la­tion­ships in th­ese mar­kets. Be­yond SADC, Hol­lard has es­tab­lished strate­gic part­ner­ships and al­liances in the rest of Africa.

“The African mar­ket pro­vides an in­ter­est­ing op­por­tu­nity for South African in­sur­ers be­cause of the large po­ten­tial and be­cause South African com­pa­nies are rel­a­tively fa­mil­iar with African cul­ture and economies, thus ar­guably mak­ing ex­pan­sion within the con­ti­nent less daunt­ing than for US or UK busi­nesses,” con­tin­ues The­o­fani­dis. “De­spite se­ri­ous com­pe­ti­tion from global play­ers and lo­cal in­cum­bents, South African in­sur­ers have achieved rea­son­able suc­cess on the con­ti­nent, in­clud­ing hold­ing lead­ing po­si­tions in sev­eral mar­kets.”

Hol­lard’s ap­proach

The­o­fani­dis de­scribes Hol­lard’s UMA part­ners as cen­tres of ex­cel­lence in re­spect of spe­cial­ist lines. “Out­side South Africa, they pro­vide sup­port and the ca­pa­bil­ity to un­der­write the rel­e­vant class of busi­ness. This in­volves train­ing lo­cal staff, pro­vid­ing un­der­writ­ing guide­lines, pol­icy word­ings, ca­pac­ity and ad­min­is­tra­tive sup­port. When the risks in the coun­try are large and/or com­plex, th­ese spe­cial­ists can as­sist with up­front risk man­age­ment, as well as post-loss as­sess­ment,” he ex­plains.

While the part­ners pro­vide the tech­ni­cal in­sur­ance ex­per­tise, staff mem­bers based at Hol­lard coun­try of­fices pro­vide in­sights and lo­cal knowl­edge and ac­cess to the bro­ker mar­ket. This is the essence of the Hol­lard part­ner­ship model. “Our model al­lows us to of­fer a one-stop shop and seam­less so­lu­tion for var­i­ous busi­nesses. Whether it is a South African client that is op­er­at­ing in the SADC re­gion or only within a par­tic­u­lar SADC coun­try, we can pro­vide tai­lored in­sur­ance so­lu­tions, both for large com­mer­cial en­ti­ties and spe­cial­ist busi­nesses. Where Hol­lard does not have a li­cence to op­er­ate in a par­tic­u­lar coun­try, we can fa­cil­i­tate a busi­ness trans­ac­tion through our net­work of part­ners and joint ven­tures/fa­cil­i­ties across the con­ti­nent.”

No walk in the park

Since in­sur­ance leg­is­la­tion and reg­u­la­tion varies from coun­try to coun­try, The­o­fani­dis stresses that a one-size-fits-all ap­proach can­not be adopted. Chal­lenges vary from coun­try to coun­try, too, but Hol­lard has ob­served a num­ber of com­mon fac­tors. For ex­am­ple, among in­di­vid­ual con­sumers, limited dis­pos­able in­come and lack of aware­ness about the im­por­tance of in­sur­ance con­trib­ute to low pen­e­tra­tion. “This is chang­ing slowly but re­mains a chal­lenge,” says The­o­fani­dis.

He adds that tech­nol­ogy will play a key role in over­com­ing the dif­fi­cul­ties as­so­ci­ated with tra­di­tional dis­tri­bu­tion chan­nels. “In or­der to suc­ceed in re­tail mar­kets, it is likely that in­sur­ers will need to em­brace al­ter­na­tive mod­els in try­ing to con­nect prod­ucts and cus­tomers in a re­li­able, cost-ef­fec­tive man­ner.”

A lack of ca­pac­ity and un­der­writ­ing ex­per­tise to un­der­write some classes of busi­ness – such as oil and gas, avi­a­tion and other spe­cialised lines of busi­ness – re­main a chal­lenge. In con­trast, “Some mar­kets ap­pear to be over-traded in terms of the num­ber of in­dus­try play­ers. This has the ef­fect of frag­ment­ing pre­mi­ums and mak­ing mar­kets ap­pear unattrac­tive to new en­trants,” says The­o­fani­dis.

“Lan­guage re­mains an un­der­es­ti­mated bar­rier. While com­mu­ni­cat­ing can be a chal­lenge, the more sig­nif­i­cant test lies in the fact that Por­tuguese and French-speak­ing coun­tries of­ten have dif­fer­ent sys­tems of gov­er­nance to English-speak­ing coun­tries on the con­ti­nent.” From an in­sur­ance per­spec­tive, the risks are not nec­es­sar­ily higher; they are dif­fer­ent. “For ex­am­ple, the ad­di­tional costs of post-loss man­age­ment in some for­eign ter­ri­to­ries, es­pe­cially when spe­cial­ist loss ad­justers’ ex­per­tise must be sourced ex­ter­nally from South Africa or Europe.”

Hol­lard’s ap­proach to man­ag­ing risks when en­ter­ing new mar­kets en­tails build­ing a strong brand and cul­ture, and part­ner­ing with lo­cal in­sur­ance pro­fes­sion­als.

The fu­ture is bright

De­spite great mar­ket and eco­nomic di­ver­sity from coun­try to coun­try, Africa holds huge po­ten­tial for the in­sur­ance in­dus­try. “The con­ti­nent’s out­look is largely pos­i­tive, given in­de­pen­dent forecasts of growth rates that ex­ceed those of de­vel­oped mar­kets and a con­comi­tant in­crease in for­eign di­rect in­vest­ment, in­creas­ing con­sumer pop­u­la­tions en­joy­ing in­creased lev­els of dis­pos­able in­come, and proven large-scale re­serves of min­eral wealth,” con­cludes The­o­fani­dis.



De­spite Namibia be­ing a very small mar­ket, Ber­tus Visser, head of dis­tri­bu­tion and busi­ness de­vel­op­ment at Natsure, says that Namibia Spe­cial Risk Ac­cep­tances ( NASRA) has achieved suc­cess. It has been run­ning for about two years and, as the reg­is­tered agent of an Alexan­der Forbes cell cap­tive wholly owned by the Natsure Group, is able to un­der­write all classes of short- term in­sur­ance busi­ness.

Airspace Africa Un­der­writ­ers

In Botswana, Natsure acts as a rein­surer to Botswana In­sur­ance Com­pany for its avi­a­tion book of busi­ness. Where risks are too big, Natsure pro­vides rein­sur­ance through Airspace Africa Un­der­writ­ers. This year, Airspace Africa be­came an ap­proved Lloyd’s

cover­holder. So while rein­sur­ance is cur­rently placed via Guardrisk in Botswana, once the book has run off, this busi­ness will be placed into the Lloyd’s mar­ket.

“Most African coun­tries like to keep lo­cal rev­enue in­side the coun­try, es­pe­cially Namibia. In Botswana again, all busi­ness has to stay within the coun­try and only when there is a lack of ca­pac­ity, will it be sourced from out­side the coun­try,” ex­plains Visser.

C&G Un­der­writ­ing Man­agers

Spe­cial­ist en­gi­neer­ing un­der­writer C&G Un­der­writ­ing Man­agers se­lec­tively looks at risks all over South­ern Africa. “C&G will look at any South­ern African coun­try when it comes to en­gi­neer­ing, con­struc­tion and re­new­able en­ergy, but will be se­lec­tive. It is not coun­tryspe­cific, but risk- spe­cific,” notes Visser. Since many of the mar­kets it op­er­ates in are small, the only phys­i­cal of­fice that the UMA has out­side of South Africa is in Wind­hoek, but its ma­jor strength is its long-stand­ing re­la­tion­ships with bro­kers.

Know­ing the risks

“The big­gest chal­lenge I’ve ex­pe­ri­enced in Africa is the push to keep money lo­cal. Se­condly, we are un­fa­mil­iar with th­ese mar­kets and so fully un­der­stand­ing the risks is a chal­lenge.” Visser says that from a reg­u­la­tory per­spec­tive, many African coun­tries lag be­hind South Africa in the same way that we lag be­hind the United King­dom and Aus­tralia. While this presents op­por­tu­ni­ties for South Africa, as less reg­u­la­tion brings down the cost of do­ing busi­ness, a solid reg­u­la­tory en­vi­ron­ment can also im­prove the flow of in­vest­ment and skills into a coun­try.


Low-fre­quency, high-sever­ity risks char­ac­terise the en­gi­neer­ing class of busi­ness in Africa, says Cas Hansa, man­ag­ing di­rec­tor of Pan African Un­der­writ­ing Man­agers (PAU), a one-year old UMA op­er­at­ing in the spe­cial­ity en­gi­neer­ing in­sur­ance sec­tor.

PAU un­der­writes on be­half of Re­gent In­sur­ance Com­pany Limited, which has in­ter­ests in South Africa, Botswana and Le­sotho.

With this in mind, in­sur­ers need to more as­tutely di­ver­sify to man­age th­ese risks. This in­cludes prod­uct di­ver­si­fi­ca­tion, ge­o­graphic di­ver­si­fi­ca­tion and time di­ver­si­fi­ca­tion. “When one con­struc­tion pro­ject is start­ing, an­other pro­ject will be in its fi­nal stages of com­ple­tion with sub­stan­tial cap­i­tal ex­po­sure,” ex­plains Hansa.

“Con­tin­u­ously par­tic­i­pat­ing in as many risks through­out as large a re­gional de­vel­op­ment catch­ment area as pos­si­ble, as well as risk shar­ing among lo­cal in­sur­ers and rein­sur­ers, helps to sim­u­late the ‘law of large num­bers’ and spread- of-risk sce­nar­ios crit­i­cally needed for in­sur­ers to suc­ceed in their en­deav­ours to match ac­tual loss ex­pe­ri­ence with ex­pected loss ex­pe­ri­ence,” adds Hansa.

An in­te­grated re­gional ap­proach there­fore im­proves the abil­ity to se­cure profit mar­gins in this so­phis­ti­cated and po­ten­tially volatile in­sur­ance sec­tor.

The law of the land

Key con­sid­er­a­tions for a South African-based UMA op­er­at­ing in the rest of Africa largely re­lates to en­sur­ing full com­pli­ance with lo­cal in­sur­ance leg­is­la­tion, says Hansa. “In most cases, this leg­is­la­tion right­fully seeks to se­cure lo­cal in­surer de­vel­op­ment. The con­tin­ued prospect of a large African in­fras­truc­tural or in­dus­trial pro­ject be­ing front-in­sured by a lo­cal in­surer and then sub­stan­tially rein­sured of­f­con­ti­nent has to be tem­pered to nur­ture and ben­e­fit many more lo­cally based en­gi­neer­ing in­sur­ers,” he ex­plains.

While this does not mean that over­seas ca­pac­ity and ex­per­tise should be ex­cluded al­to­gether, sup­port­ing the prof­itable de­vel­op­ment of Africa’s own spe­cial­ist in­sur­ance ca­pac­ity is vi­tal for our own hu­man cap­i­tal de­vel­op­ment. “En­gi­neer­ing un­der­writ­ing on the con­ti­nent should be strongly sup­ported and fa­cil­i­tated so that a net­work of en­gi­neer­ing spe­cial­ists (bro­kers, loss ad­justers and un­der­writ­ers) can en­sure that Africa too is at the fore­front of this risk/in­sur­ance fron­tier,” con­tin­ues Hansa.

“The en­gi­neer­ing in­sur­ance sec­tor is crit­i­cally im­por­tant, since prior to any de­vel­op­men­tal pro­ject be­ing given the green light to pro­ceed, the pro­ject man­agers must en­sure an en­gi­neer­ing/works in­sur­ance pol­icy has been se­cured from an au­tho­rised in­surer. En­gi­neer­ing-in­sur­ance prospects there­fore di­rectly cor­re­late with any lo­cal and for­eign di­rect in­vest­ment po­ten­tial on the con­ti­nent.”

PAU’s point of fo­cus

PAU pro­vides fac­ul­ta­tive rein­sur­ance ca­pac­ity sup­port to lo­cal in­sur­ers. Through tech­ni­cal sup­port and a fo­cus on lo­cal skills de­vel­op­ment, it seeks to fa­cil­i­tate greater self- re­liant de­vel­op­ment on the con­ti­nent. The crit­i­cal pur­pose of in­sur­ance is to re­solve and pay claims quickly, which re­quires lo­cal pres­ence and easy ac­cess to the req­ui­site skills sets. “It is im­por­tant to con­sider the speed at which claims can be pro­fes­sion­ally as­sessed and ad­justed, es­pe­cially in fairly re­mote lo­ca­tions, as well as how quickly re­pairs can be con­cluded on so­phis­ti­cated, im­ported ma­chin­ery, for ex­am­ple,” says Hansa

“In this con­text, also con­sider the ex­po­sures with con­se­quen­tial loss type cov­ers, such as loss of prof­its or de­lay in start-up. Even when the dam­ages are in­sur­able, con­sider road ac­ces­si­bil­ity, bor­der-post/cus­toms pro­cess­ing and ac­tual ship­ment (road, air and marine) re­sources.” Once again, this points to an ur­gent need for an in­te­grated Pan-African strate­gic ap­proach in all spheres of in­flu­ence.

Hansa em­pha­sises, how­ever, “The folly of a Pan-African ap­proach would be to re­gard the re­gion as a ho­mogenised mar­ket or stan­dard­ised busi­ness op­por­tu­nity. Each coun­try has its own unique busi­ness fea­tures and lo­cal leg­is­la­tion dy­nam­ics, which must be un­der­stood and re­spected.”

Apart from phys­i­cal ex­po­sure con­sid­er­a­tions, each coun­try has its own pre­vail­ing skill sets and in­sur­ance ca­pac­ity, high­light­ing the need for a con­certed ef­fort in en­sur­ing the nur­tur­ing and de­vel­op­ment of skilled lo­cal foot­prints, prefer­ably en­trepreneuri­ally op­er­ated by lo­cals. “As en­gi­neer­ing-in­sur­ance spe­cial­ists, PAU is mind­ful of the need to en­sure we re­spect­fully en­ter re­gional mar­kets through the shar­ing of ex­pe­ri­ences and skills, and the sup­port of lo­cal busi­ness de­vel­op­ment through pro­ject­pro­grammes paid for, in the fi­nal analy­ses, by Africans,” con­cludes Hansa.


Emer­ald Risk Trans­fer

A di­vi­sion of Santam Limited, Emer­ald Risk Trans­fer has been un­der­writ­ing risks in Africa for the past six years. It is the largest cor­po­rate prop­erty and af­fil­i­ated en­gi­neer­ing in­sur­ance un­der­writer in South Africa and cur­rently has poli­cies in ap­prox­i­mately 15 sub-Sa­ha­ran coun­tries, among them, Mozam­bique, Namibia, Zimbabwe, Ghana, Guinea, DRC, Nige­ria and Zam­bia. “Emer­ald spe­cialises in large cor­po­rate prop­erty risks such as min­ing, in­fra­struc­ture, rail and man­u­fac­tur­ing. In ad­di­tion to pro­vid­ing rein­sur­ance ca­pac­ity, we of­fer tech­ni­cal as­sis­tance, both from an in­sur­ance per­spec­tive as well as risk en­gi­neer­ing and man­age­ment,” says CEO, Bernie Ray.

Ray notes that Africa, as an emerg­ing econ­omy, of­fers chal­lenges that are not present in de­vel­oped economies. “Trans­port, com­mu­ni­ca­tion and lan­guage are com­mon is­sues. Then there is the threat of real or per­ceived po­lit­i­cal in­sta­bil­ity and dif­fi­cul­ties with for­eign ex­change,” he says. “Com­pe­ti­tion is keen, and mar­kets are slow to em­brace change. There is no quick fix to es­tab­lish­ing an African foot­print and it re­quires de­ter­mi­na­tion and per­se­ver­ance. There are, how­ever, great re­wards. Busi­ness in our mar­ket sphere is usu­ally prof­itable and the risks are well man­aged.”

Santam Avi­a­tion

A siz­able Santam of­fice and ad­e­quate in­fra­struc­ture make Namibia the eas­i­est coun­try for Santam Avi­a­tion to op­er­ate in out­side of South Africa. In ad­di­tion to Namibia, the di­vi­sion has quite ex­ten­sive deal­ings in Botswana, Zimbabwe, Zam­bia and Mozam­bique. “Botswana has come a long way on the avi­a­tion front to make it safer, es­pe­cially in the swamp ar­eas. The coun­try’s civil avi­a­tion au­thor­ity has tight­ened up reg­u­la­tion around when and where you can fly, as well as im­prov­ing airstrips around the Delta re­gion, which is the area that car­ries the most air traf­fic in Botswana. The reg­is­trar has also stepped up its game in terms of do­ing busi­ness there and com­pa­nies must go through lo­cal sub­sidiaries,” com­ments James God­den, head of Santam Avi­a­tion.

Botswana is more ac­ces­si­ble than Mozam­bique. Air­craft wrecks can be brought into South Africa rel­a­tively eas­ily via a flatbed truck; while in Mozam­bique, retriev­ing air­craft can prove more chal­leng­ing. “Lan­guage is an­other is­sue and it’s im­por­tant to have some­one on the ground who can speak Por­tuguese,” notes God­den.

He says that Zimbabwe has been wide open for busi­ness as over­seas com­pa­nies have stayed away from the coun­try. “It’s im­por­tant to go through a lo­cal in­sur­ance com­pany when op­er­at­ing in Zimbabwe. There is a very small avi­a­tion mar­ket there, so we don’t have too many prob­lems.” Santam Avi­a­tion op­er­ates through Tristar In­sur­ance Com­pany in Zimbabwe.

Zam­bia, though much the same as Zimbabwe, is slightly more ef­fi­cient due to po­lit­i­cal rea­sons. Gen­er­ally, a lack of in­fra­struc­ture, as well as the lack of main­te­nance and re­pair skills is a chal­lenge. Cur­rency is­sues, such as ex­change rate fluc­tu­a­tions, makes do­ing busi­ness tougher. From a risk ex­po­sure point of view, deal­ings in West Africa, in­clud­ing Ghana and Nige­ria, are more con­cern­ing, but this re­gion is open­ing up and of­fers ma­jor op­por­tu­nity.

The cost of re­cov­ery from most coun­tries is quite ex­pen­sive and re­pairs must usu­ally be done in South Africa. In­evitably you have to look at higher ex­cesses, which is not ideal for the client.

Some of the risks posed by this re­gion in­clude fuel con­tam­i­na­tion, which oc­curs when wa­ter seeps into fuel that is be­ing stored in bar­rels at re­mote airstrips; the qual­ity of the land­ing strips; as well as herds of cat­tle and goats, and some­times peo­ple, walk­ing across the strips.

“The cost of re­cov­ery from most coun­tries is quite ex­pen­sive and re­pairs must usu­ally be done in South Africa. In­evitably you have to look at higher ex­cesses, which is not ideal for the client,” says God­den. “We are very se­lec­tive of the risks we write. A coun­try like the Demo­cratic Repub­lic of Congo is a mas­sive con­cern for us and has the high­est fa­tal­ity rate in the world. It is also lo­cated on the equa­tor and is ex­posed to in­cred­i­bly harsh storms, has vir­tu­ally no in­fra­struc­ture and is in po­lit­i­cal tur­moil.”

Santam Avi­a­tion op­er­ates through lo­cal bro­kers in Kenya and Tan­za­nia. The South African op­er­a­tion of­fers un­der­writ­ing and claims con­trol, tak­ing a big­ger por­tion of the risk as the lo­cal play­ers are gen­er­ally quite small. “I think that will change. The Zam­bian State In­sur­ance Com­pany, for ex­am­ple, is now pre­pared to write 100 per cent of avi­a­tion risks,” says God­den.

“There con­tin­ues to be a lot of ac­tiv­ity in this space. Avi­a­tion will grow faster in a coun­try like Nige­ria, for in­stance, than in cer­tain other African coun­tries. Santam Avi­a­tion will keep ex­pand­ing but will be very se­lec­tive about the risks we ac­cept.”

A lack of ca­pac­ity and un­der­writ­ing ex­per­tise to un­der­write some classes of busi­ness, such as oil and gas, avi­a­tion and other spe­cialised lines of busi­ness, re­main a chal­lenge.

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