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31 October 2018 | www.moneymarketing.co.za
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frica’s insurance industry is facing more disruption than any other industry, posing challenges for some while providing business opportunities for others. That’s the word from Victor Muguto, Long-term Insurance Leader at PwC Africa. “Africa’s insurance market is largely unpenetrated and needs all the resources at its disposal to grow,” Muguto told MoneyMarketing, following the recent release of PwC’s survey *Ready and Willing: African insurance industry poised for growth. Main themes of the survey The survey finds that four main themes are influencing the continent’s insurance industry. Firstly, the increased use of technology across all of Africa – due to the exponential growth of mobile phones – has contributed significantly to the large number of new customers and more tailored products. Technology presents insurers with powerful tools to better understand customers and their expectations through data mining capabilities and artificial intelligence (AI). Secondly, insurers see stringent risk-based prudential capital and market conduct regulations as disruptive – although most insurers in Africa are now accustomed to and willing to comply with new legislation. However, the introduction of the international financial reporting standard IFRS 17 is also expected to add new pressure.
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COLONOSCOPIES AND THE SA MARKET
A HOLISTIC, COST-EFFECTIVE HEALTHCARE SOLUTION
It’s been a pretty unpleasant ride for investors in the SA equity market over the past few years.
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Africa’s insurance industry poised for growth Some new regulations will drive insurers to redesign simpler products. South Africa’s Microinsurance framework will offer alternatives to reduce the costs of insurance at the lower end of the market. Thirdly, there is a ‘scramble’ for the continent’s customers. Africa’s rising middle class is driving insurers, bankers and non-traditional players such as mobile operators to compete for the power of owning customers and customer information – however, human intermediation is still required for complex products. Lastly, the survey notes that talent shortages in both technology and actuarial skills are notable. This means that insurers need to spend more in training their future workforce. Added to this is an increase in employee expectations of wanting to achieve a better work-life balance. Responses to disruption While insurers across the continent may be adopting multichannel distribution strategies and taking more direct ownership of their customer relationships, this applies mainly to simple products such as car insurance that can easily be sold through direct channels, Muguto told MoneyMarketing. “Africa’s insurance industry needs its brokers, and always will, given their detailed understanding of insurance risk, knowledge of Africa’s insurance clients and markets, as well as their extensive network
of relationships. The more complex products, such as commercial, engineering and marine insurance, require the technical underwriting and expert intervention of experienced intermediaries.” Muguto points out that existing broker channels have not always been able to support Africa’s customer needs. “As an example, technology in the form of mobile devices now offers insurers the opportunity to more directly access and interact with those customers in Africa’s rural areas who could not be reached through bricks and mortar channels in the past.” While the survey finds that some less established brokers may find it difficult to remain competitive in the market, more established ones are expected to consolidate in order to achieve scale and compete. * The survey was developed by PwC South Africa in conjunction with the PwC Market Research Centre in Luxembourg. The online survey was conducted over the months of July to November 2017 and collected the views of insurance CEOs, CFOs and CROs in Ghana, Kenya, South Africa, Uganda, Zambia and Zimbabwe. The online survey was supplemented by face-to-face interviews with six CEOs of South African insurers.
Victor Muguto, Long-term Insurance Leader, PwC Africa
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T +27 11 263 7700 E laurium@lauriumcapital.com www.lauriumcapital.com Laurium is an authorised financial services provider (FSP No 34142).Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.lauriumcapital.com.
NEWS & OPINION
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NEWS & OPINION
31 October 2018
Black asset managers still locked out
J
EDITOR’S NOTE
ust under 10% of the R5tn managed by private retirement annuity approach the big branded names sector asset managers is managed by majority and not black service providers. “Access to capital black-owned asset managers, according to and markets remains a big problem,” she adds. the 10th annual BEE.conomics – In 2017, the Standing Committee on Transformation in South African Asset Finance and the Portfolio Committee on Management Survey published last month by Trade and Industry held public hearings on 27four Investment Managers. the transformation of the financial sector. The Furthermore, only 10 firms out of a total of 48 committees subsequently released the first report black-owned firms manage 84% of the R490.30bn on the transformation of the financial sector in managed by the black asset management subNovember 2017, which will inform the agenda for sector, and a single firm, Taquanta Asset Managers, the upcoming Nedlac Financial Sector Summit. is responsible for 30% of the total value. The survey’s respondents were asked to give their Fatima Vawda, MD of 27four Investment view on market concentration, monopolisation, Managers, describes the survey’s findings as ownership and licensing. Over 85% of “shockingly disappointing”. respondents felt that appropriate targets should A total of 48 black asset management firms be set in the Financial Sector Code for asset are currently active in South managers and asset consultants. Africa, 243% higher than in Most black firms within the A TOTAL OF 48 2009. Still, only 15 of these are sector are Exempted Microolder than ten years, indicating Enterprises whose annual BLACK ASSET a high turnover rate and a turnover falls below R10m and MANAGEMENT sustainability challenge in the very few companies qualify as FIRMS ARE face of dominant incumbents. large enterprises (revenue greater The survey provides a than R50m p.a). A small portion CURRENTLY complete overview of black of businesses have delivered ACTIVE IN SOUTH consecutive years of profit with participants in the asset management sector, including many not being able to contribute AFRICA the Top 10 majority blacktowards the fiscus. owned companies by assets under management, The survey also details findings that ownership in both the institutional and retail environments. is concentrated in the hands of a few people, The survey also examines the mandates mostly males, with very little broad employee managed by black firms across asset classes, participation within the firms, which presents a domestically and globally, and identifies the challenge in retaining talent. products that receive the most support and the Keynote speaker at the launch of the survey products where skills need to be developed. A was deputy president of the EFF and a member strong correlation was found between the size of of Parliament’s Standing Committee on Finance, a business and the number of products offered. Floyd Shivambu. He recommends that legislation Older and stronger businesses with bigger be put in place to speed up transformation in teams tend to have larger product offerings, the industry: “If we don’t legislate concrete catering to a wider customer base. There remains transformative very little product diversification outside of changes, which will mainstream product offerings. Asset classes enforce economic such as global assets and alternatives remain inclusion of black unexplored or in their infancy among black firms. people and women, Fatima Retirement funds dominate the asset base and we will be addressing Vawda, MD of 27four concentration risk to a few clients remains high. the same problem in Investment Retail penetration remains stubbornly low and 50 years’ time.” He Managers close to non-existent when evaluated against adds that Section 9 recent statistics on the unit trust industry. Black (2) of the constitution participation, both in terms of the number of unit provides for trusts managed and the size of assets managed legislative action to Floyd within unit trusts, is extremely low, at less than be taken to advance Shivambu, 1% of the total industry. or protect persons Deputy Vawda points out that consumers wanting disadvantaged by President, to purchase a tax-free savings investment or a unfair discrimination. EFF
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had a wonderful time at the IFA Symposium last month. The speakers were excellent and MoneyMarketing made a lot of new friends by having a stand there. One of the most fascinating speakers was Vikram Mansharamani, a lecturer at Harvard's John A Paulson School of Engineering and Applied Sciences. His talk explained how he spots market bubbles – and one of the ways he does this is by watching out for skyscrapers. Yes, skyscrapers. Mansharamani reasons that corporates put up large buildings when things are going well – and the better the times, the taller the buildings. However, he points out that the construction of the world’s tallest towers are usually a sign of hubris and overconfidence – and very often bubbles. He cites the Great Depression and building construction in New York as one of the instances where the world’s tallest skyscrapers and bubbles coincided. In 1930, at the start of the Great Depression, 40 Wall Street became the world’s highest building, only to have the owners of the Chrysler Building put up a spire that robbed them of this title. Both, however, were outdone when the Empire State Building became the world’s tallest in 1932! Mansharamani gives plenty of other examples – too numerous to mention here – and while he acknowledges that his ‘skyscrpaer indicator’ is certainly unconventional, he believes that combining it with other developments can assist us in navigating a path through global economic cross currents. If you’re watching the markets anxiously and you want to know where the next tallest towers will be built, go to skyscraperpage.com Janice janice.roberts@newmediapub.co.za @MMMagza www.moneymarketing.co.za
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NEWS & OPINION
31 October 2018
CEDRIC MASONDO, MD, SASRIA SOC LTD
VERY BRIEFLY How would you describe Sasria?
Sasria SOC Ltd is a state-owned company and the only shortterm insurer in South Africa that provides special risk cover for loss incurred during events such as strikes, public disorder, riots, civil commotion and terrorism. Our mandate goes beyond providing short-term solutions to such volatile, unfortunate incidents – it includes making an impact on the economic stability, growth, development and transformation of South Africa.
In SA, do most companies view insurance that covers civil protests as a priority?
Special risk cover is important for the financial sustainability of any business. During times of civil unrest, companies often lose assets and/or infrastructure. Restoration of that infrastructure is crucial to the continued sustainability of businesses. As such, companies that want to protect their assets against loss do prioritise this type of insurance.
How many individuals insure with Sasria?
mandates, we are exploring ways to increase the level of product penetration and reach, so that our services can be accessible to uninsured potential clients, such as people running small retail operations in townships and in informal settlements.
Could you give some indication of Sasria claims – what percentage of recent claims come from strikes and what percentage from service delivery protests? Over the past three years, we have seen a trend where over 90% of our claims are service delivery related. Over the last three months, we have seen a significant increase in new registered claims. The current socio-political environment has resulted in us handling over 2 278 new registered claims since the beginning of this financial year, being April 2018. This is a 78% increase compared to the same period of the previous year. July has been a record-breaking month, with 671 claims received; this is nearly double the number of claims we received in the same month in 2017.
Over 90% of short-term insurance policies have Sasria cover attached to them. Sasria insures individuals as well as businesses and government entities that own assets in South Africa. At the moment, aligned to our
Do you anticipate that political risk claims will be higher next year due to national elections taking place?
Protests and civil unrest are very unpredictable. At any given time, there’s always a potential for strikes and protests to occur. As a company, we are solid and well-capitalised to deal with such potential eventualities. We have ensured adequate reinsurance placements with AAA-rated reinsurance companies and remain solvent above the regulated requirement. Our current financial position reflects the quality of talent the organisation has, from entry level to the Board of Directors. We have consistently received clean audits over several years and are very proud of the fact that we were recently recognised as one of the best-run state-owned enterprises in the country.
90% OF OUR CLAIMS ARE SERVICE DELIVERY RELATED
UPS & DOWNS Banking group FirstRand reported a 12% rise in its basic and diluted headline earnings per share to 472.7 cents in the year ended June. It announced a dividend of 275 cents per ordinary share, a rise of 8% from last year. FirstRand’s portfolio comprises FNB, RMB, WesBank, Aldermore and Ashburton Investments. FirstRand also reported a 4% increase in customers to 8.15 million.
South African drug manufacturer Aspen Pharmacare lost R18.5bn of its value on 13 September – its biggest plunge in two decades – after the market took a dim view of the price it received ($860m) for the sale of its infant milk business, as well as its reported earnings, which fell short of expectations. Aspen’s share price fell as much as 26% before recovering to close 14.8% down at R232.06, leaving its market capitalisation at R105.9bn.
The Investec Board announced last month that Investec is to demerge and publicly list its asset management division, IAM, (presently an independent global asset manager), within the group. IAM has increased third party assets under management from £40m in 1991 to £109 bn as at 31 August 2018.
Parties that are aggrieved by decisions of the Pension Funds Adjudicator (PFA) may now lodge appeals with the Financial Services Tribunal. Until recently the determinations of the PFA could only be taken on appeal to the High Court – at great cost – within six weeks of the decision. PFA Muvhango Lukhaimane welcomes the new move, saying anyone who is aggrieved with the outcome of a determination is entitled to lodge an application for the reconsideration of the determination within 30 days of the date of the determination to the Financial Services Tribunal. “This measure is greatly appreciated by the PFA’s office as it will avail an inexpensive avenue for all those aggrieved to Muvhango lodge appeals and not Lukhaimane, be prohibited to do so Pension by costly High Court Funds Adjudicator processes,” she adds. Compli-Serve SA has welcomed esteemed compliance officer, Theresa van Diggelen, to its Gauteng office. She holds a BCom degree in Human Resource Management from the University of Pretoria. She is a skilled FAIS and FICA compliance officer with a keen interest in risk management. “We welcome Theresa and the wealth of expertise and experience she brings with her. Her keen interest in risk management will definitely stand her in good stead and we are happy to have Theresa her on the Complivan Serve Gauteng team,” Diggelen, says Richard Rattue, CompliServe SA MD of Compli-Serve. Tebalo Tsoaeli has been appointed as Chief Information Officer of Glacier by Sanlam with effect from 1 September 2018. He has experience in the stockbroking, capital markets and investment management industries. This experience includes the implementation of key strategic projects across real-time trading and investment systems, high-frequency algorithmic trading and quantitative modelling. He obtained a BSc in Computer Science through the University of KZN, a BSc Honours in Computer Science through the University Tebalo of the Free State, and Tsoaeli, Chief has also completed Information an MBA through Officer, Rhodes University’s Glacier by Business School. Sanlam
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6
NEWS & OPINION
DR DES LEATT Skills Specialist at Compli-Serve SA
31 October 2018
Understanding ‘Fit and Proper’ competence requirements: Class of Business Training
B
oard Notice 194 introduces important new competence requirements: Class of Business Training and Product Specific Training and Tier I and Tier 2 products (simpler products). For ease of reference we will tackle Class of Business and Product Specific training in separate articles. Who is exempt? Class of Business Training applies to ALL FSPs, key individuals and representatives, except for the following: • Those rendering financial services only in respect of financial products, Long-term Insurance Act and/or Friendly Society Benefits; and • Representatives of a Category I FSP that is appointed to only: • perform the execution of sales in respect of a Tier 1 financial product, provided applicable terms and conditions in section 22 (b) (ii) are complied with • render financial services in respect of a Tier 2 financial product. New and important requirements that now apply An FSP must ensure that prior to the rendering of any financial service, its representatives are proficient and have completed adequate training and been assessed on the class of business in which that product falls (1 August 2018). Where applicable, supervision applies for representatives.
Key individuals must complete their applicable class of business training prior to managing or overseeing the rendering of financial services. Class of Business Training applies to key individuals only in respect of the classes of business for which they are approved to act as key individuals or in respect of which approval is sought. Class of Business Training, where appropriate, must include training on: • The range of financial products • General characteristics of the product • Typical fee structure • General risks associated with investments • Investment and risk principles • Appropriateness of different products • Typical role players • Impact of applicable legislation • Impact of the applicable economic and environmental factors • Inter-relationship with and between other classes of business Industry standards and codes of conduct relevant to class of business. Who provides the training? Class of Business Training must be provided and assessed by an accredited education institution. Where a financial product incorporates one or more underlying financial product/s, the product training must include Class of Business Training in the underlying product/s.
Compulsory record keeping and reporting requirements • The competence register must be updated within 15 days of the training • Applicable documentation must be kept for not less than five years after the representative has ceased to render the financial services, or the key individual has ceased to manage or oversee the particular financial products • In addition, within a reasonable period, a product supplier may request applicable training information, and a key individual or representative may request confirmation of applicable training completed from a former FSP. Note: In addition, key individuals and representatives would be wise to keep their own records of Class of Business Training completed! Finally and most importantly: • An accredited provider is one who is recognised and certified by a Quality Council, including an equivalent foreign authority • The definition of ‘assessed’ provided in Board Notice 194 states that: • there must be a structured process of gathering reliable evidence • against pre-determined standards • to determine competence.
Thousands of documents signed electronically LexisNexis has enabled thousands of documents and contracts worth more than R30bn to be signed electronically, says Ewald Scheepers, Director for LexisNexis South Africa’s Business Software Solutions division. The Lexis Sign platform allows users to upload any PDF document for signing and eliminates the need to print, scan and email thanks to a simple, secure, entirely web-based platform that does not require additional hardware, enabling documents to be signed anywhere, any time and on any device. Now, in a historic development that could spell more efficient conveyancing processes, the South African Deeds Office has registered its first electronically signed property transfer. Thanks to Lexis Sign – a digital signature platform that is underpinned by the Electronic Communications and Transactions
(ECT) Act and meets international standards for digital signatures – the property of Zelda Lendon was registered in the Bloemfontein Deeds Office early in July with the Power of Attorney to Transfer Property electronically signed by both client and conveyancer. Although the documents still had to be lodged manually, the process marked a giant leap forward in the ongoing quest for innovation that improves deeds registration. The global move towards digital signatures could help overcome some of the efficiency, cost and logistics challenges experienced in the South African conveyancing field. Conveyancer Gerda Janse van Rensburg, from Neumann van Rooyen Attorneys in Welkom, took this groundbreaking step to use electronic signatures on documents registered in the highly regulated deeds office. “This will hopefully evolve into a complete electronic
property registration and mortgaging system in the near future. It will drastically improve property registration turnaround times, benefitting sellers, purchasers, estate agents and credit providers alike.” Property owner Lendon agreed that the process was fast and hassle free. Chapter 3, Part 1 of the ECT Act gives legal recognition to electronic documents and recognises that electronic documents and signatures can serve as functional equivalents of their paper-based counterparts. The ECT Act also creates a particularly reliable form of electronic signature, known as an ‘advanced electronic signature‘ (AES). Where a law (such as the Deeds Registries Act) requires a signature, only an AES will be valid. The use of an AES by a conveyancer is a legal requirement for the Power of Attorney to Transfer Property. “This technological advancement can fundamentally change the
conveyancing industry in South Africa, setting the precedent for electronic documents to be used throughout the conveyancing process, with only submission into the deeds office requiring printing, says Scheepers. Lexis Sign is one of a slew of innovative solutions from LexisNexis that have transformed the conveyancing profession over the past 40 years. LexisNexis has entrenched itself as a leader in the conveyancing sector, with pioneering solutions including Lexis WinDeed, Lexis AgentIQ, Lexis PropIQ, Lexis Connect, Lexis DocAssembly and Lexis Convey. Scheepers says digital signing of conveyancing documents could assist with the industry’s future adoption of an Electronic Deeds Registration System (e-DRS), a structure that is currently being scrutinised by the Department of Rural Development and Land Reform.
INVESTING 7
31 October 2018
TIM HUGHES Director of Corporate Affairs, Warwick
‘
Sewers of corruption!’ The imagery used by President Cyril Ramaphosa to describe South Africa's political challenges is pungent, powerful and apposite. If South Africa’s state-owned enterprises are sewers of corruption, then the Zondo Commission of Inquiry into State Capture leaves us in no doubt who the sowers of corruption were. One wonders whether former President Nelson Mandela’s response to the evidence emerging at the Commission of Inquiry would be along the lines of, “Never, never and never again shall it be that this beautiful land will experience the theft of all by the few.” Evidence led would suggest that while the nation was sleeping, a small band of international thieves tunnelled into our treasury, fleeced our fiscus, spooked our intelligence services, milked our farmers, hobbled our health services, muzzled our ministers, hijacked our airlines, bent our business, panicked our police and corrupted our communications – all under the protection of Number One. The breadth and depth of this national rape is at once eye-watering and disgraceful. Not only was our Ministry of Finance put up for sale at the knockdown price of R600m, but we came perilously close to mortgaging our future and that of our children to the Russian state and its nuclear interests. Yet the clear warning signs have been flashing for some time that elements of the South African state and its institutions have been manipulated, used and abused for party, political and personal gain. The arms deal (now some 20 years since the klaxon sounded), was but one of the numerous democratic slide-aways that grew into an avalanche threatening to bury our nation, our democracy and our hope. These factors are structural and institutional and until they are addressed, the potential will exist for history to repeat itself. Consider the electoral system that rewards party loyalty and lacks the direct accountability of a constituency-based system. Until elected representatives are accountable directly to the electorate, the keystone of representative democracy will remain flawed. Furthermore, there is the process of party state capture after 1994 that replaced the previous form of party state capture in 1948. It is de rigueur for
Never again! liberation movements to capture state apparatuses and to populate them with exiled party loyalists. This stems from the real insecurity of the threat of reactionary forces, including the military and police, often combined with Leninist tendencies of ‘democratic centralist’ control. To prosecute a ‘national democratic revolution’ demands full control of every vestige and lever of the state apparatus. While the case for the democratisation and representivity of the state sector is axiomatic, cadre deployment across all three tiers of government has left local government denuded of basic managerial skills, provincial government bloated and a national government demonstrably unable to run a capable state. The Chapter Nine institutions, specifically empowered within the constitution to protect our fledgling democracy, are sub-optimal. Most notably, the office of the Public Protector is profoundly under-resourced to carry out its critical mandate and task. This was pointed out repeatedly by Advocate Thuli Madonsela. The problem is compounded when the selection process for this critical role is politicised and indeed the mandate unclear, misunderstood and contested. But the pathology runs much, much deeper than just the political classes. With notable exceptions, the media have too often failed to carry out their mandate as the fourth estate. Business is also culpable. Again, with few credible exceptions, it pulled down the shutters, battened down the hatches or slid sycophantically into a state of muted compliance, looking the other way while political pirates plundered from the poor. Worse still, some of the globe’s most respected companies became complicit in state capture, prostituting themselves while breaching their core mandate and raison d’etre. So, what can be done to ensure that never, never and never again will the South African state be captured by a few at the expense of the people? The national concern is that – just like the Seriti Commission into the arms deal – nothing will come from the current raft of commissions of inquiry. Yet the answer is clear: prosecutions. Whether it be Life Esidimeni, SARS, Steinhoff, or state capture, those found to be culpable must be brought before the criminal justice system, so that we the people can recapture our beloved country.
Regional venture capital investment at record high The Southern African Venture Capital and Private Equity Association (SAVCA), the industry body and public policy advocate for the asset classes in the region, has announced that the venture capital industry in Southern Africa invested a total of R1.16bn in 2017; exceeding the R1bn mark for the first time. This was revealed in the latest SAVCA 2018 Venture Capital Industry Survey. SAVCA, along with research partner Venture Solutions, surveyed 57 fund managers and other industry investors to compile the data. The report shows that overall, at the end of 2017: • A total of R4.39bn had been invested in 532 deals, managed by 57 fund managers • The total value of investments increased by 33% • Angel investors invested approximately R73m, compared to R44m in 2016 • Sectors that attracted the most investment from a value perspective included Manufacturing (10.2% of all active deals); Consumer Products and Services (9.6%); and Software (9.1%).
INVESTING
THE INSIDER CHRONICLES
8
INVESTING
31 October 2018
MIKE TITLEY Business Development, Laurium Capital
T
he theory is simple: include more assets with uncorrelated return profiles, and you’ll improve your risk-adjusted return. That’s why one may own a variety of shares from multiple industries, perhaps a few government bonds and property, and maybe even some alternative investments. Hedge funds are an investment class that offer diversification without giving up high returns. That is precisely why they shot into popularity internationally in the 1990s. The strongest and most valuable variety of diversification that hedge funds offer is downside protection in equity bear markets. However, the investor who has also exposed himself/herself to a (well-managed) hedge fund may not only avoid losses to the extent of that exposure but can actually gain from it. That is the advantage of short selling. Hedge funds that make the right call to short a falling share can buy it back at the lower price after the sell-off.
Hedge funds: Still the doyens of diversification?
The ability to go short means returns are uncorrelated with market conditions. In other words, all investors win when GDP per capita, employment, FDI and exchange rates are moving in the right direction. But as with equity markets, this never lasts. Markets inevitably pull back and, again, hedge funds with a sound philosophy, process and strategy can not only survive the downturn, but benefit from it. This has a particular appeal in South Africa. Despite the ‘Ramaphoria’ surrounding President Cyril Ramaphosa, the economy has failed to break the cycle of intermittent forays just above and below the hurdle of GDP growth. Ongoing political tensions, especially around the contentious issue of land expropriation without compensation, make for more treacherous and longer dives below zero growth, taking us deeper into a technical recession. That said, hedge funds aren’t only generators of alpha when indices and market conditions turn bad. The
HAMILTON VAN BREDA Head of Retail Sales, Prudential Investment Managers
I
n today’s volatile market conditions, it may seem like the wise thing to do is to hold more cash in your portfolio because of the safety it appears to offer. Yet, if you are a longerterm investor, with a timeframe of five years or more, there are also significant risks involved in holding too much cash instead of equities, such as that you will be foregoing higher returns and their compounding effect over time. Over the last three years or so, cash has generally delivered more than equities in South Africa, which has tempted many investors to switch into cash and out of equities. ASISA statistics have confirmed this trend, as more investment flows have moved out of higherequity funds and into more conservative, higher-cash solutions. Yet these returns are not the norm: South African equities consistently produce higher returns than cash most of the time, especially as time periods get longer. This is clearly shown in Table 1, where we have calculated the percentage of time that cash returns (as measured by the Short-Term Fixed Interest Call Index) have beaten equities (as measured by the FTSE/JSE All Share Index). You can see that when you look at any one-year (rolling) period during this 53-year timeframe, cash has outperformed equities only 39.3% of the time. And importantly, equities have returned an average of 18.3% p.a., while cash has returned only 10.4% p.a. As the period gets longer, up to 10 and 15 years, the percentage of time that cash
participation in long positions means upside participation when those stocks rise, and the real economy grows. Of course, there are challengers to the title of doyens of diversification. One piquing international interest of late is factor investing. This complex quantitative investment strategy involves identifying the underlying and persisting factors that drive returns in any given asset class. This may be macro factors (GDP growth, interest rates, etc.) or what are called style factors (these rely on the same unconscious tendencies identified in behavioural economics). Big data and computing power can then assemble these factors to build a portfolio that diversifies not only within equities but, increasingly, across both equities and bonds. This, in theory, means a highly refined type of diversification. Domestically, factor investing (smart beta) has been gaining attention and some traction in the past few years. But as with any new contenders, factor investing has much to prove before convincing the investing world
Are you holding too much cash?
Graph 1: Equities outperform cash, but with more volatility 3 Year rolling returns
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Graph 1: Equities outperform cash, but with more volatility
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20,0%
10,0%
0,0%
-10,0%
-20,0%
-30,0% May-68
of the benefits of its novel form of diversification. First, even those hedge funds that have adopted it have done so to a limited degree internationally – they remain very much hedge funds at heart. This includes AQR Capital Management, the second largest hedge fund manager globally, an early adopter of factor investing, where traditional hedge fund strategies retain dominance in much of its $226bn assets under management. However, as attested to by a mediocre-to-torrid 2018 for factor-based funds, this is no silver bullet. With clear regulations now in place, hedge funds should be considered a key differentiating building block within a portfolio. They have the characteristics to work well alongside the long-only asset classes in one’s portfolio and may be added up to 10% within a Regulation 28 Fund. For long-proven, impactful diversification of the sort no other investment vehicle can mimic, the hedge fund remains the doyen of diversification.
3 Year rolling returns 70,0%
60,0%
50,0%
40,0%
30,0%
20,0%
10,0%
0,0%
-10,0% May-73
May-78
May-83
May-88
Equity - FTSE/ JSE All Share Index (return 14.8% p.a.) -20,0%
May-93
May-98
May-03
Cash - SteFi Call Index (return 10.6% p.a.)
May-08
May-13
Inflation - Consumer Price Index
periods, equities substantially outperform cash, by 5 percentage points and 5.2 percentage points respectively. This difference might seem small, but can make a significant difference: R1 000 invested over 15 years in cash at 11.8% p.a. and compounded will give you R5 329, while the same in equities at 17% p.a. will give you R10 539, or nearly double. Meanwhile, if you look at how the returns of both cash and equities have been delivered, it is clear how much more volatile equities are than cash. Graph 1 shows both cash and equity returns over all three-year periods compared to South African inflation. The equity returns of the ALSI are represented by the red line, cash by the black line and consumer inflation (CPI) by the pink line. Over the 50 years to May 2018, equities experienced the largest and most frequent ups and downs, but they were also the highest-returning investments by far, delivering 14.8% p.a. compared to cash at 10.6% p.a. Cash returns only beat inflation by 1.5%. There’s no doubt that resisting the urge to build up cash in your portfolio is difficult during periods of poor equity returns, but successful investors will avoid moving to cash, and not attempt to time the ups and downs of equity cycles. So, when South African markets experience periods where cash outperforms, remember that this is only temporary and that, eventually, equities will resume their stronger performance. May-18
Source: Prudential Investment Managers -30,0% May-68
May-73
May-78
May-83
May-88
May-93
May-98
May-03
outperforms equities shrinks to only 22% of the time for all 10-year periods, and only 9.4% of the time for all 15-year periods. And over these 10- and 15-year Equity - FTSE/ JSE All Share Index (return 14.8% p.a.)
Cash - SteFi Call Index (return 10.6% p.a.)
May-08
May-13
May-18
Inflation - Consumer Price Index
Source: Prudential Investment Managers
INVESTING 9
31 October 2018
PETER ARMITAGE CEO, Anchor Capital
I
ts been a pretty unpleasant ride for investors in the South African equity market over the past few years. The total return for the Top 40 Index over the past three years has been about 8.5% p.a., but once you’ve stripped out the impact of Naspers (which was responsible for about 40% of that performance), the rest of the market has barely been able to keep pace with inflation over that period. The ANC’s December elective conference – which delivered a Cyril Ramaphosa victory and a healthy dose of hope for the trajectory of the local economy – also provided a huge boost to domestically focussed investments like The Foschini Group, which rallied around 70% in the wake of the conference. Unfortunately, the tangible benefits were slow to follow and, as pressure mounted in emerging markets globally, most of the ‘Ramaphoria’ gains were reversed.
Colonoscopies and the SA market With this recent experience fresh in our collective memories, it seems an opportune time to revisit the research of renowned behavioural psychologist and Nobel prize-winner Daniel Kahneman, who has spent a lifetime devoted to helping us avoid making irrational decisions. Kahneman was convinced that our memories of events often ignore the duration of those events and found several novel ways to test his thesis. The one we’ll explore now involved patients undergoing colonoscopies (which seems appropriate given the recent experience of South African investors!). Kahneman created a test that allowed colonoscopy patients to record their level of discomfort at each minute during the procedure and then at its conclusion record an overall level of discomfort for the procedure. Kahneman found that
Figure 1: The Foschini Group – a South African story
patients consistently ignored their cumulative level of discomfort when recording their memory of the overall procedure, instead placing too much emphasis on how the experience ended – a cognitive bias he called ‘recency bias’. Figure 2: Colonoscopies and cognitive biases – perception vs reality
Source: Daniel Kahneman
In light of the above, we think investors will do well to remind themselves of the long-term benefits of remaining invested in equity markets, especially when the most
WE THINK INVESTORS WILL DO WELL TO REMIND THEMSELVES OF THE LONGTERM BENEFITS OF REMAINING INVESTED IN EQUITY MARKETS Source: Bloomberg, Anchor Capital
recent memory of that experience makes you want to throw in the towel. At times like these, investors should remember that the FTSE/ JSE Shareholder Weighted Index has delivered a 17% p.a. return over the last 15 years (a period that included the 2008 global financial crisis and the past three years of lacklustre local returns) – even measured in US dollar terms, that was a 12% p.a. return. Thus, we believe that investors with patience (and liquidity) will ultimately be rewarded with healthy compound investment growth if they can stay the course.
10
INVESTING
31 October 2018
JESSICA GROUND Global Head of Stewardship, Schroders
How should investors approach governance in emerging markets?
Environmental, social and governance (ESG) investing has grown in prevalence in recent years but remains less widespread in emerging markets versus developed markets. As it becomes more mainstream, investors will have to tailor their approach to account for key differences between ESG issues in developed and emerging markets, particularly when it comes to assessing corporate governance. Better transparency evident The benefits of sustainable investing are becoming well known on a global basis, backed by much empirical work showing the positive effect such an approach can have on investment performance, particularly in emerging markets. Furthermore, policies and practices within emerging markets are improving; a rising number of governments are introducing stewardship codes to local markets while some stock exchanges (including South Africa) have introduced ESG reporting standards to encourage sustainable investing. Although standards in emerging markets are converging with those in the developed world, there are key differences in the underlying markets that need to be recognised and which means that a blanket approach cannot be applied across both
developed and emerging markets. Looking at corporate governance in particular highlights how a one-size-fits-all, tick-box method can lead to misguided conclusions. Corporate governance is not one-size-fits-all For many investors, corporate governance is the most immediately important factor out of the three ESG issues; if governance is strong, an investor can be more confident that the firm is managing the major environmental and social challenges in an effective way too. However, in the case of emerging markets, conventional metrics of governance quality may be insufficient. Importantly, investors need to be aware of how local market structure, cultural issues and operational norms differ between individual emerging markets, and between emerging markets and their developed counterparts. For example, majority shareholders are prevalent in emerging market companies for a number of legacy reasons. These corporate structures are particularly common where state-owned enterprises (SOEs) dominate strategic sectors in many markets (especially in China). This can be a cause for concern among many developed market investors because of the questions it raises about misaligned interests – whether the SOE’s interests are more closely aligned with the state rather than other shareholders. Similarly, family-owned enterprises, which are particularly prevalent in India, may be perceived to put founder shareholders’ interests above that of other shareholders.
However, a study by UBS in 2016 found that family-owned companies consistently performed better than other corporate structures across all regions. The research indicated that listed familyowned companies combined the benefits of access to funding via capital markets with stable ownership. They therefore tended to take a long-term approach to value creation, with a focus on their core business and a preference for conservative growth. This generally resulted in better governance overall and improved stock performance. Active engagement key to informed investment decisions Clearly, excluding companies purely on the basis of their corporate structure will narrow an emerging markets investor’s opportunity set unnecessarily. At Schroders, we adopt a balanced approach to analysing and understanding the nuances of the wider business culture, and the practices and motivations of management, by actively engaging with company management to select those companies with the most sustainable business models. Jessica will be speaking at Schroders Investment Symposium in 2019. Important Information: For professional investors and advisers only. The material is not suitable for retail clients. We define ‘Professional investors’ as those who have the appropriate expertise and knowledge e.g. asset managers, distributors and financial intermediaries. Schroders Investment Management Ltd is an authorised financial services provider FSP No: 48998, registration number: 01893220
Opportunities in fixed income
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merging markets have sold off significantly this year, amid sharply deteriorating sentiment towards assets and economies that investors perceive to be risky. This has created an opportunity in inflationlinked RSA Bonds (ILBs), according to PSG Asset Management. “We’ve been watching this area of the market for a while, but it previously offered an insufficient margin of safety,” says Tyron Green, fund manager of the PSG Income and PSG Diversified Income funds. ILBs provide a hedge against rising inflation as well as protection against upward inflation shocks. They are issued with a fixed coupon (annual interest rate) on a principal amount (the amount invested by the bondholder) that is adjusted for inflationary growth. Consider an ILB that was issued for R100 with a fixed coupon of 3%. If inflation in the first year of investment is 6%, it would bring the bond’s total return to R9: a coupon of R3 (3% of the R100 principal) and principal
growth of R6 (a 6% inflationary adjustment on the R100 invested). If inflation in the second year of investment is 10%, the annual return will be R13.78: a coupon of R3.18 (3% of the revised principal amount of R106) and principal growth of R10.60 (a 10% adjustment to the revised principal amount of R106). Green says that ILBs are once again offering attractive real yields. “As their popularity has waned in the wake of deteriorating emerging market sentiment, ILBs have become more attractively priced.” Prices have fallen along with investment demand and yields have risen. As such, ILBs with longerdated maturities are now offering real (above-inflation) yields of over 3%, while real yields on shorter-dated ILBs are around 2.8%. “This is the first time in recent years that these assets have presented a compelling investment case, especially as the high yields available in the early 2000s were on offer to attract investment when the instruments
were launched. As a result, ILBs have been added to our buy list.” Green says that PSG Asset Management aims to construct portfolios that will perform under various scenarios. “We don’t attempt to make predictions and don’t bet on outcomes. Our base view remains that the South African Reserve Bank (SARB) will continue to implement its inflation-targeting mandate successfully, as it has done since the introduction of the policy framework in 2000.” While inflation has seen some upward pressure due to higher wage negotiations, electricity price increases and the recent rand blowout, it is generally still expected to remain within the inflation target band (between 3% and 6%). Under this scenario, says Green, the fixed-rate instruments in PSG’s fixed income portfolios should continue to offer real long-term returns. As such, the firm still sees opportunity in South African sovereign bonds, fixed-rate negotiable
certificates of deposit (NCDs), corporate bonds and bonds issued by select state-owned enterprises. However, there is also a scenario under which inflation and interest rates rise. In this type of market, floating-rate instruments will outperform their fixedrate counterparts, and ILBs will outperform traditional bonds. To hedge against this risk, PSG has diversified its holdings by investing in floating-rate instruments, offshore cash and ILBs. “We believe that this best positions our investors to achieve the returns they require over the appropriate time periods, and under a range of possible outcomes.”
Tyron Green, fund manager, PSG Income and PSG Diversified Income funds
October 2018 | VOLUME 2
SHORT-TERM INSURANCE SPECIAL SUPPLEMENT
How corporates mitigate travel risks (page iii)
Why insurance policies are cancelled (Page viii)
An insurance policy is the last line of defence against commercial fire risk (page ii) {I}
S H O R T-T E R M I N S U R A N C E S PE C I A L
GARETH STOKES Stokes Media
PREVENTION OVER CURE
An insurance policy is the last line of defence against commercial fire risk.
Typical risk mitigation strategies against fire events include: Introducing a hot work permit system that manages the exposure of welding, grinding or cutting on the premises; not stacking arge commercial fires are in the news once goods too high to reduce the fire load and make it more following the death of three firefighters easier to fight a fire; installing smoke detection to while fighting a blaze at the Bank of Lisbon raise the alarm at the incipient phase of a fire; and building in central Johannesburg. The fire started actively managing process waste such as plastic, on the 23rd floor and it took three days, from 5 to 7 cardboard and pallets to reduces the fire load and September 2018, before it was fully extinguished. minimise the areas where a fire can start. Aside from Around the same time firefighters contained a major on-site mitigation efforts, the risk management plan fire at a glue and paper factor in Kya Sands, an should consider the state of municipal infrastructure industrial suburb of Johannesburg. as it pertains to water supply, water pressure at site South Africa’s short-term insurers have come and local firefighting capacity. under pressure in recent years due to larger than The insurance policy is the last line of defence expected commercial property claims, often due against risk and only kicks in after all efforts to to fires at commercial complexes. In 2017-18 Old prevent a fire loss have failed. According to Bryte Mutual Insure received large claims for fire damage Insure, the claims process begins with the insurer to an abattoir, a school (damaged by the June 2017 gathering relevant information as soon as possible Knysna fires), a pack house in the Northern Cape following the loss event to enable them to validate and a church in KwaZulu-Natal. “Although each and accept the claim. “Once the claim is accepted, of these were unfortunate events, it is a privilege we determine the costs required for mitigation and to be part of the process to help our clients get business continuation and make an interim payment back into the position they were in before the – the initial actions are crucial because they have catastrophe happened,” WP Pienaar, Head: Quality an impact on the business interruption part of the Underwriting at Old Mutual Insure, says. claim,” said Reynier Rautenbach, Head: Claims Santam has reported a sharp rise in large Operations at Bryte Insure. Complex commercial commercial claims over the past three years. claims, especially the business interruption Two of the largest claims assessed component of such claims, can take by the insurer in 2017-18 occurred 18 months or longer to finalise. THERE ARE at luxury thatch lodges. “Fires cost Old Mutual Insure discussed the South African businesses millions claims process with reference to VARIOUS WAYS annually – from acres of vineyards type of loss. “The damaged church FOR INSURERS to industrial property, fire remains generated a significant property TO PREVENT a huge and growing risk,” says John damage loss while the business Melville, Head of Risk at Santam. interruption was not material,” said CLAIMS FROM There are various ways for Pienaar. “The composition of a pack SPIRALLING OUT house loss would depend on the time insurers to prevent claims from spiralling out of control, beginning of the fire – if the loss occurred after OF CONTROL with better risk selection during the the packing season, the material underwriting stage. “Insurers need to ensure that they damage would contribute the largest share of the loss provide insurance to policyholders who practice good with limited impact on the business interruption. But risk management and adhere to the Occupational if the loss occurred just prior to the packing season or Health and Safety Act,” Melville states in an interview early in the packing season, the business interruption that took place prior to the Bank of Lisbon fire. claim would be substantial as the insured would According to Melville, all large property risks lose most of their income and may even incur a should be surveyed by the insurer before being substantial increase in their cost of working too.” placed on cover. It is also important that each Insurers are unanimous in acknowledging the stakeholder in the process – including the insurer, importance of setting correct premiums (prices) for insurance broker and insured – understand both the the level of risk exposure. Santam concluded that type of risk being covered and the losses that might large property risks should be priced according to arise following a loss event. the exposure that they carry in terms of the type of This survey should go beyond inspecting the business that is being undertaken at the premises. activity and infrastructure at the insured’s premises Most importantly: Insurers must refuse risks that to include surrounding businesses that may create a are not accurately priced and walk away from those danger to the risk insured. “Detailed risk reduction that are poorly managed. requirements should [then] be communicated to the Gareth Stokes is a professional freelance journalist and writer who insured and their broker and compliance with these specialises in the financial services industry. He recently teamed up requirements should be monitored to ensure they with Liz Still to publish a comprehensive guide to the local shortare carried out,” says Melville. term insurance sector. The second edition of ‘Everything you need to Bryte Insure agreed that all stakeholders know about non-life insurance in South Africa’ is available online at www.analytica24.co.za should take responsibility for risk assessment and risk mitigation and that closer collaboration, engagement and TO WIN A COPY OF THIS innovative use of technology and data BOOK, SEE PAGE 20 can make this process more efficient and effective.
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WIN
{II}
31 October 2018
SAIA CONSUMER EDUCATION INITIATIVE COMMENDED The Belgium-based Global Federation of Insurance Associations (GFIA) has commended the South African Insurance Association (SAIA)’s long-standing consumer education programme as the ‘best practice’ initiative in Africa and among the top five globally – the other four came from the Americas, Europe, Asia and Oceania. Zanele Gigaba, SAIA Transformation Manager, says: “We realise how this has become a priority for the industry, policymakers as well as regulators. As the short-term insurance industry in South Africa, we remain committed to a holistic financial inclusion strategy that seeks to reach and educate stakeholders of all walks of life. “Through our interventions with pupils in high schools, students in tertiary institutions and ordinary adults within the targeted consumer market segment, the intention is to ensure that financial education is entrenched at an appropriate stage and that the contents are relatable and relevant to individuals’ financial needs at that stage.” The SAIA has therefore continued to foster positive partnerships with the public entities such as the Department of Basic Education and the institutions of higher learning to successfully advance the objective of reaching the pupils and students. The association has been innovative in increasing the reach for ordinary current and potential consumers by using media platforms such as community radio stations, that allow for the use of local languages to convey the messaging to listeners, while they have the opportunity to call in during an interactive session with industry experts on the questions they may have. The association’s TV programme (Next of Next Week, which is in its successful third season) will air on SABC to contextualise the contents from a visual perspective. Themba Palagangwe, General Manager for Transformation and Governance at the SAIA, says: “The aim is to pitch our programmes to the right audience level and ensure the impact of our interventions lead to an improved level of financial literacy within our society. It is imperative that we endeavour to remain innovative with our content development and delivery modes to touch and impact on a wider population within the targeted consumer market segment. “SAIA is also continuously looking for opportunities to collaborate with appropriate partners, including government agencies and other industry bodies, in developing and implementing programmes with a wider range of financial literacy content in order to advance our objectives of delivering world-class programmes to our consumers.”
S H O R T-T E R M I N S U R A NC E S PE C I A L
31 October 2018
MAGCINO GULE Senior Manager, travelsure, Old Mutual Insure
HOW CORPORATES MITIGATE TRAVEL RISKS
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s South African corporates continue to globalise their operations at a rapid rate, it is becoming increasingly important to manage the risks that come with doing business on a global scale. One of these risks is traveling to far-flung locations to do business. South Africa’s oldest insurer, Old Mutual Insure, has recently launched travelsure Corporate, an exciting travel insurance product that allows corporates to mitigate this risk by purchasing an annual travel policy that covers their employees’ local and international business travel needs throughout the year. This new, specialised insurance product comes with a comprehensive list of benefits, value-added features and excellent service. It is designed to put corporates and their employees at ease by making sure that, no matter where in the world their business takes them, they’re always in good hands.
THE PRODUCT HAS BEEN DESIGNED TO SUIT THE NEEDS OF VARIOUS CORPORATE CLIENTS AND HAS A RANGE OF COVERS TO CHOOSE FROM
The product has been designed to suit the needs of various corporate clients and has a range of covers to choose from. Key benefits travelsure Corporate offers local and international travel insurance solutions designed to meet the specific needs of any business. Clients are covered for: • Medical expenses • Lost baggage and money • Delays and missed connections • Personal liability • Cancellation and curtailment • Political evacuation.
CAROLINE THEODOSIOU Director, Norton Rose Fulbright
INSURANCE INDUSTRY AFFECTED BY EXTREME WEATHER EVENTS
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Value-added features include: • Automatic cover for accompanying spouses and dependents • Telephonic medical advice and medical foreign language translation • Arrangements for medical repatriation • Travel management system integration. How will travelsure Corporate benefit you or your company? Through client centricity, systems integration and excellent service, travelsure Corporate enables Old Mutual
ur climate is changing and we need look no further than the last few years’ catastrophic weather events to see evidence of this. Although there are some denialists, scientists tell us that South Africa is heating up at twice the rate of the rest of the globe. Whether these extreme weather events can be attributed to climate change or whether we are simply going through changing weather cycles, the effects on the insurance industry are significant. One of the factors to consider in this environment is the increased potential for liability on the part of professionals, particularly those involved in design and construction. These professionals would be well placed to take into account the changing weather patterns in their design parameters. While the law and standards applicable to buildings are often slow to change, the professionals themselves could take steps in order to mitigate any claims that may be made against them as a result of the impact of the weather on their designs. Directors and officers of companies who are involved in construction or similar projects would
Insure to make it easy for both brokers and corporate clients to do business with it. The insurer has also announced exciting partnerships with Europ Assistance and iJet, to differentiate the value-added benefits in the market, with enhanced risk management capabilities and technologies. The world can be a dangerous place, yet it is filled with unlimited opportunity. Let Old Mutual Insure cover you as you travel to seek out these opportunities.
also be well placed to consider their governance obligations. Directors need to take steps to consider the changing weather patterns. They also need to avoid any actions, for example inappropriate dumping of debris, that may result in increased losses to the company. Where directors have failed to take such steps or have acted inappropriately, their actions or omissions may well cause losses to the company that may in turn result in losses to their shareholders and creditors. In such cases, the shareholders and creditors may ultimately bring claims against such directors for those losses. Professionals and directors need to be more aware of the changes in climate and the impact on their company, profession and society. They need to consider taking appropriate steps to mitigate that impact now rather than waiting for laws to change. Serious thought must be given to how their actions will affect the company, their profession and society in the future if the climate continues to change. Taking appropriate action now may result in a small increase in costs in the present but may well result in significant savings in the future. {III}
S H O R T-T E R M I N S U R A N C E S PE C I A L
31 October 2018
ADDING VALUE FAR BEYOND A GOOD PRICE
S
antam has been in the business of insurance, good and proper, for 100 years. During its time, the company has seen, firsthand, how the expert advice of intermediaries transforms the lives of policyholders and their businesses. “An intermediary plays a pivotal role in supporting clients by simplifying complex terms, assessing and addressing risk, providing expert advice and negotiating competitive pricing. In our increasingly complex business world, the intermediary has become incrementally relevant,” says Andrew Coutts, Head Intermediated Distribution at Santam. The following, Coutts says, are some of the reasons why clients need to have expert intermediaries at their sides. Simplicity, personalised service, choice and cost Contrary to many misconceptions, extensive research exists that shows that intermediated policies are not more expensive than those sold direct. Brokers have access to a wide selection of some of the best insurers in the country, many of whom do not sell directly to the public. Once {IV}
a broker has properly assessed your individual insurance needs they do the shopping for you, to find you the right coverage at a competitive price. With a broker you also deal with a dedicated individual who you get to know and trust, with the added benefit of the flexibility of face-to-face engagement or interaction via online or telephone channels of your choice.
boxes each year, but changes such as building works, acquisitions or dispositions may well affect the value of the risk. If you are insured through a broker, your broker will ask questions about possible changes to your circumstances to ensure that risk protections are still accurate and you have the relevant level of cover.
Claims experience and Expertise and advice advocacy Brokers provide expert, unbiased Claims time is crunch time and an advice on your individual insurance intermediary provides invaluable needs. Unlike other providers who support throughout the process. are focused on selling you something, As a partner and advocate, an with a broker your intermediary works interests come first. with an insurer, BROKERS PROVIDE on an insured’s It is this focus on customer needs EXPERT, UNBIASED behalf, to try and rather than their speed up the claims ADVICE ON YOUR own that sets process as much as the broker apart possible. Experience INDIVIDUAL from all other INSURANCE NEEDS also shows that a insurance options. broker’s knowledge Brokers are free to make impartial and contacts can often help settle a recommendations, have access to disputed claim. specialist underwriters, help ensure Certain claims can be stressful your assets are correctly valued and for clients/businesses when they help you through the fine print.” have to provide information and When it comes to renewing a documentation in support of their policy, many people simply tick the claim. This is a time when clients
realise why an intermediary is such an essential part of their business advisory team. Powerful support for intermediaries As a leader in short-term insurance, with over 100 years of experience, Santam continues to work very closely with intermediaries, in delivering insurance good and proper to their clients. “We offer a wealth of support, which includes ongoing professional education through workshops and conferences, constantly innovating technology platforms, an extensive decentralised footprint and alwayson claims support solutions. Intermediaries are and will remain our preferred distribution channel,” says Coutts.
Andrew Coutts, Head Intermediated Distribution, Santam
31 October 2018
S H O R T-T E R M I N S U R A NC E S PE C I A L
HARDENING AVIATION INSURANCE PREMIUMS CAN BENEFIT THE INDUSTRY
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remiums are hardening in the aviation insurance industry as capacity, both locally and abroad, is contracting. Although this is not great on the pocket at first, it will ultimately benefit clients, says Reon Wiese, an aviation insurance specialist at PSG Insure, part of JSElisted PSG Konsult. Over the last 10 years, insurers have been adding aviation to their offerings and newer, smaller aviation brokerages have been offering cheap coverage. This resulted in a glut that drove premiums down to unprecedented and, in Wiese’s opinion, unsustainable levels. Wiese, an aircraft owner and pilot himself, admits that low aviation insurance premiums are attractive, especially considering the overall cost of this pursuit. “But while low premiums are attractive, what’s more important is that your claim is ultimately settled as expected.” In the last couple of years, insurance companies began realising losses from their aviation lines. “This wasn’t as a result of increased claims, but rather due to premiums becoming unsustainably low, resulting in insurers losing money,” says Wiese. Insuring a flight school with six or more aircraft for a minimal premium is good for the client in year one. However, claims will negate the premium with the first loss. Insurers then have no option but to substantially increase the next year’s premium, failing which the sustainability of the insurance line is threatened.
As a result, a number of aviation insurance carriers started offloading their aviation books. In Wiese’s view, this process is only halfway complete, particularly in the general aviation segment. In insurance parlance, airplanes with over 50 seats are classed as airlines, while those with less are classed as ‘general aviation’. Because prices were driven so low, increases will have to be fairly substantial going forward. Wiese says that in both general aviation and airline insurance, prices have already gone up between 10% and 15%, depending on the insurer. “In both segments we expect similar increases for the next CLAIMS IN five years to bring AVIATION premiums back to levels where clients INSURANCE are getting good CAN BE coverage from reliable MASSIVE underwriters who, in turn, are able to settle claims and still make an appropriate profit,” he says. To put the increases required to return to sustainable premium levels into perspective, it is worth noting that rates 10 years ago were more than triple compared to today’s levels. Claims in aviation insurance can be massive. Therefore, it’s important that your insurance company has good credentials and your brokerage is able to service and support you to the expected standard, he adds. “When smaller aviation insurers or brokers exit the market because they accepted the risk at an unsustainably low rate, they tend to leave behind unsettled claims with difficult reinsurance structures and no payment. Alternatively, the claims only get half-settled with the insurer refusing to pay the claim in full. This is clearly neither to the benefit of clients, nor the aviation industry.” South African law requires advisers to first try to place a policy in the local market. There are now only a handful of South African insurance companies that provide aviation insurance. PSG supports solid local companies with the risk they are comfortable in covering. Bigger risks are placed through a combination of syndicates within Lloyds of London and/or A-rated international insurers. “Risk sharing is a vital feature of aviation insurance,” Wiese says. PSG Aviation is one of the biggest aviation insurance brokerages in South Africa, and the only one that provides a full-service offering across all classes of short-term insurance (commercial and personal lines).
Reon Wiese, aviation insurance specialist, PSG Insure
JAY PAGE Senior Associate, Bowmans
INSURERS MUST TAKE CARE WHEN PROBING CLAIMS
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f it is not already high on the agenda, becoming familiar with the requirements of the Protection of Personal Information Act (POPI Act) should be a priority. In the UK last year, a firm of loss adjusters was found guilty of unlawfully disclosing personal data illegally obtained by senior members of its staff and by private investigators. Sentencing took place earlier this year and fines of more than EUR 150 000 were imposed in terms of the UK Data Protection Act. The POPI Act is largely based on its UK counterpart. The perpetrators were found to have illegally obtained the private bank records of an individual who they were investigating. The loss adjuster, acting for an insurer, had illegally obtained the financial information in order to ascertain whether the insured had the funds to bring legal action if cover was denied. In the course of investigating a claim, loss adjustors routinely, if it is merited, conduct a thorough investigation not only into the circumstances of the claim, but also into the insured. The investigation, rightly or wrongly, can be particularly intensive when there is a suspicion of fraud or a suspicion that the claim has been exaggerated. According to the South African Insurance Association, fraudulent claims are estimated to account for as many as 32% of all claims submitted in any year, so there is cause to investigate. While it is justified in certain cases to investigate further, insurers, loss adjustors and their employees must be wary of falling foul of data protection laws, as well as their duties to treat customers fairly. One of the practices that was not sanctioned was ‘blagging’. This involves calling up an organisation that holds private information and posing as an employee or as the actual individual under investigation in order to obtain private data. This would be crossing the line. Phone tapping and intrusive surveillance likewise cross the line. Searching online social media sites, as well as surveillance such as video recording, on the other hand, can be justified so long as there is no invasion into the individual’s private space. {V}
Client’s reaction to a stolen delivery truck.
Santam is an authorised financial services provider (licence number 3416).
KINGJAMES 43687
Together we make it right.
Intermediary’s reaction to a stolen delivery truck.
We know how important the intermediary’s role is in the world of insurance. You can never put a limit on the value of an intermediary. From making sure our mutual clients are properly covered to providing simplicity in a world of complexity. It’s a partnership that always has and always will be very important to Santam, and why we will continue to support and invest in their success. And when things go wrong, we work together to help make it right. Santam. Insurance good and proper.
Insurance good and proper
S H O R T-T E R M I N S U R A N C E S PE C I A L
NTHABISENG MOLOI, Head of Marketing & Brand, MiWay
WHY INSURANCE POLICIES ARE CANCELLED
Policy cancellation is not something insurers carry out lightly, but it is sometimes unavoidable. It is important to understand why it happens, as cancellation can have a detrimental effect on the future ability of consumers to obtain insurance.
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31 October 2018
hen an insurance policy is cancelled, many consumers tend to see it as unfair. In most cases, this is because they have not fully realised that an insurance policy is actually a contract between two parties: the insurer and the insured. The contract aims to protect the insured against certain risks in exchange for a premium, and the insurer relies on the insured to provide an accurate and honest picture of the nature of the risk, based on the answers given to a set of questions. The insurer does its best to assess what the risk is and bases the premium on that assessment. It stands to reason that if the risk changes or the insured breaches some of the terms of the policy, it has the option to cancel the policy. If, however, the risk turns out to have been higher than originally assessed, the insurer can void the policy, in which case it is as though it never existed, and all premiums will be returned. By the same token, the insured is also at liberty to cancel the policy if he or she is dissatisfied in any way or has found a better deal with another insurer.
In that case, the insurer might make a counter-offer and if it is accepted, the contract would be amended to reflect the new terms and conditions. If not, it would be cancelled, and the insured would enter into a new contract with another insurer. Most policies allow for a 30-day notice period of cancellation, which gives both parties time to seek a solution. If, however, there has been dishonesty or fraud, the insurer can cancel without notice. So, what would lead an insurer to cancel a policy? There are three main causes for policy cancellation: • Dishonesty. This would be when it transpires that the insured was not truthful about the nature of his or her risk profile, or he or she has made fraudulent claims. Most people would accept that honesty is fundamental to any business relationship – and especially in insurance, where uberrima fides, or utmost good faith, is legally considered to be the default position on both sides. • Altered risk profile based on changed behaviour. Some people take the attitude that once they are insured, they can take less care of whatever has been insured, on the basis that it is insured, and the insurer can just pay. This reckless behaviour would obviously result in a greater number of claims than the insurer had anticipated based on the original risk profile. In other words, the contract or policy would no longer be an attractive business proposition for the insurer. In such a case, a reputable company would first contact the insured and advise him or her to modify their
behaviour to bring their risk profile back into alignment with the policy. Only if this did not mend the issue would the policy be cancelled. • Non-payment of premiums. When an insured party does not pay his or her premiums for three consecutive months, the insurer is entitled to cancel the policy. Consumers should remind themselves that by behaving in a way that leads to excessive claims does not affect just themselves, but everybody who insures with that company. It is rather like a stokvel member who constantly borrows money from the fund – soon enough, the other members would request that person to leave the group as his or her behaviour is jeopardising everybody else’s chance of benefitting from the communal funds. If consumers are unfortunate enough to have policies cancelled and they believe they’ve been unfairly treated, their first port of call would be the insurer’s own dispute-resolution team. Insurers have a vested interest in keeping their clients happy, after all. In the unlikely event that the matter is not resolved, the Ombud for Short-term Insurance will provide an objective, specialist assessment of the case and offer relief if it is warranted. A contract must work for both parties. Once there is an understanding on the part of the consumer that the contract with their insurer is based on a certain risk profile, they will be better placed to act accordingly, and the contract will continue to provide the cover required.
STRUGGLING FOR CORPORATE CAPACITY? Don’t forget the options and benefits presented by good and proper risk finance, or alternative risk transfer, says Alfons van der Vyver, executive head of risk finance solutions at Centriq Insurance - a member of the Santam group.
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oal, furnace risk, oil premises other combustible chemicals, plastics recycling, sawmills, textile manufacturing, (the list goes on…). Corporate capacity is currently demanding significant price increases. That is if you can get it in the local market at all. The shakeout in the corporate market (e.g. Plum) and lowering of reinsurance referral levels for certain direct insurers, has resulted in carefully deployed capacity. And, a significant hardening in rates. In these circumstances, the tried and tested approach of a proper ‘self- insurance’ and/or alternative {VIII}
risk transfer (ART) strategy, could be what’s called for. At Centriq we believe that the answer is almost never only conventional insurance or ART. A properly structured corporate placement should involve a comprehensive needs analysis on the client’s risk portfolio whilst the final programme for a corporate placement should definitely cater for an element of ART or at least a documented consideration thereof. But how should the intermediary, who has to deliver a thorough record of advice to their client, go about this? As I we often tell brokers: “Cut the tree from three sides…” 1. Discuss with the client their risk appetite and ability to fund a formal risk retention structure. 2. Test the market at different attachment points (deductibles/ excesses). 3. Obtain indicative pricing and structuring options from your insurer. “And then circle the tree a few times.”
Some brokers think that when they can “renew as per expiry” or reduce deductibles for their client and ‘fill the slip’, it’s a job done. However, as the best corporate brokers know, negotiating an insurance renewal or new placement is an iterative process. The corporate market responds to significant changes in deductible structures. It responds to loss limits instead of total sum insured. Converting a commercial multiperil policy into a corporate wording makes a difference. Incorporating an annual aggregate deductible instead of on ‘each and every’ deductibles, makes a difference. Reconsidering the need for conventional insurance whatsoever on certain perils, makes a difference. (For example, a corporate with a number of premises, fairly spread apart, might not need to buy electronic equipment cover. Think group contingency policy where all subsidiaries pay the normal rate into a central structure, from which claims are settled.)
Then, an element of funding in a formal structure may give the conventional market the confidence of complete and accurate claims reporting in structure where the client has ‘skin in the game’. Incorporating ART into a corporate programme should not result in a reduction in brokerage or commission. If the intermediary has the client’s best interest at heart, the optimally structured programme for the client will pay off in the long term. Or think about ART like this: If you don’t offer it to your client, someone else will. And we still sell lots of what we do in this environment.
Alfons van der Vyver, Executive Head, Risk Finance Solutions, Centriq Insurance
31 October 2018
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31 October 2018
E X C H A N G E T R A D E D P R O D U INVESTING CTS 11
Managing for a ‘Nokia’ type risk within an index
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he story of Nokia’s rise from 9% to 72% on the Helsinki Stock Exchange is often cited as an example of how inefficient index funds can be, particularly in smaller, concentrated markets. South Africa and other markets such as Hong Kong and South Korea are exposed to this kind of risk, though not as extreme. However, this alone shouldn’t discourage investment in index funds, as the industry has evolved and adjusted for this sort of outlier. Large single stock exposures Given that a large benefit of index funds is in their ability to offer investors diversified portfolios of shares, having large single stock exposures runs the risk of eroding this value proposition. It is therefore important for investors to understand what is inside their index funds, with the view of understanding how concentration risk is managed within each. Over the last few years, the evolution of indices in South Africa has led to the introduction of simple risk-based rules within index funds. As an example, the S&P South Africa 50 index is an index that invests in the 50 largest shares on the JSE. This index simply avoids excessive single stock exposure by capping the weight of any single share at 10%. This simple cap has a large impact on the diversification of this index when compared to the traditional FTSE/JSE Top 40 index that most investors are familiar with. Nominally, the Top 50 invests in 50 shares, while the Top 40 invests in 40 shares. This 10-share nominal difference in shares is advantageous, but the greater relative advantage is in the weighting scheme. The effective number of stocks is a figure that is used to measure the concentration and diversification within a portfolio of stocks. A low value represents a portfolio concentrated in only a few stocks and vice versa.
Using the Herfindahl-Hirschman measurement, the Top 40 index has an effective number of stocks of 11.4, and this exposure improves to 20.5 in an index fund like the CoreShares Top 50. The results show that applying a simple capping methodology can provide investors with significantly more diversification. Harry Markowitz
is famous for having said that diversification is the only free lunch in Finance. Poor performance It is great that investors can achieve better diversification within index strategies, but doesn’t this come at the expense of performance? Too many voices in the investment
Where smart money works.
management industry attribute poor performance to a purely concentration issue in the market. While it is true that a share like Naspers poses a level of idiosyncratic risk (where it is currently 24% in the Top 40 index), capping its exposure in an equity fund is usually assumed to have detrimental return effects. To dispell this assumption, one should examine the performance of the CoreShares SA Top 50 ETF against the ASISA SA Equity Gen peer group average. Since the ETF’s inception in May 2015, it has had a return of 8% p.a. Over the same period, the peer group had a 3.2% p.a. return (Top 40: 7%). A lot of investors who are clients of traditonal equity managers would notice that most of the top 10 holdings in their manager’s portfolio are not too different to the basket of top 10 shares in a standard equity beta like the FTSE/JSE ALSI. For example, the top 10 largest equity funds in the South African market (which make up more than 55% of the market) have an average exposure of 14% in Naspers. And so the criticism that is often levied at index funds does not seem to be translated to traditional equity funds. As a sign of consistency, the CoreShares ETF has outperformed the peer group in 24 of the 28 rolling one-year periods since its inception. The idea that index funds are inferior in that they provide average returns is then untrue. Additionally, the more sensible allocation to Naspers and the other large caps that the fund provides have been proven to not automatically result in inferior returns. The CoreShares Top 50 index fund is a simple smart investment which can be used within portfolios to increase diversification, decrease manager selection risk and lower the cost of investment for investors. (The Fund recently won the Most Capital Raised award in the SA equity category at the inagural SALTA awards and can be accessed via the following LISPs: Glacier, Momentum and STANLIB).
HEALTH
12
MEDICAL AID FEATURE
31 October 2018
Consumers may make bad decisions about medical cover in 2019 On the heels of the announcement that South Africa’s economy has slumped into a recession, medical aids review season opens. This is the time when medical aid announce any increases or changes in benefits and contributions and consumers are able to make changes to their medical aid options for the new year. “The timing and overlap of these two events could create the perfect storm in an industry currently under severe pressure,” says Werner Coetzer, CEO of medicalaid.co.za. A review of current news headlines would leave any South African feeling seriously concerned about their future financial health and less likely to be committing to any big expenses in the near future, he adds. Out-of-control fuel prices and alarming stats showing that there are more adults not working than working in South Africa spring to mind. “Highlights from the Broll quarterly retail report added concern, showing food prices rising faster than they should when compared to inflation. For example, when applying inflation rates over the past decade to white bread, it should cost consumers R9.86 per loaf vs the R13.49 that they
are currently paying. “One wonders how consumers will adapt”, says Coetzer, pointing out that medical aid premiums in South Africa are already a huge burden as they eat away a large percentage of disposable income, right up there with bond, rental and car repayment expenses. “Unfortunately, unlike homeloans and car repayments, medical aids are optional and could be perceived as a means to free up cashflow.The average contribution increases in 2018 for the bigger medical schemes ranged from 7.90% for Discovery Health; 8.70% for Bonitas; 9.50% for Fedhealth; to 8.40% for Bestmed. We are likely to see similar if not larger increases for 2019. In the current economic climate, the bigger concern is that South Africans may abandon their medical aids completely and decide to entrust their future health wellbeing to the already overburdened state healthcare system,” he cautions. In June 2018, Forbes published stats linking financial stress to illness, stating that those with high financial stress are twice as likely to report poor health overall and are four times more likely to complain of headaches, depression or other
ailments. The stats also reveal that those with higher levels of financial stress suffered from worse health challenges such as muscle tension, high blood pressure and insomnia. “This is not the time for South Africans to be considering cancelling their medical aid cover for 2019. Now, more important than ever, is a careful consideration of their scheme and option choice to ensure they retain access to private healthcare,” says Coetzer. He suggests that the month of October should be used to properly research options by visiting comparison websites where instant comparison data on price and benefits for all of SA’s top medical aid providers can be accessed in one place. “This way, informed decisions regarding medical aid cover for 2019 can be made,” he adds.
Werner Coetzer, CEO, medicalaid.co.za
Bonitas announces 8.9% increase with added benefits
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onitas Medical Fund has announced a weighted increase of 8.9% for 2019, in spite of a challenging year for the healthcare industry. Principal Officer, Gerhard Van Emmenis, says the Fund has announced a number of additional benefits for its members for 2019, while keeping increases as low as possible. Working together to reduce healthcare costs Van Emmenis notes that over the past few years, Bonitas has taken a multipronged approach to cost saving, focusing on: • Hospital Negotiations “Hospital claims account for half of Bonitas’ annual claims, around R6bn a year. For this reason we negotiated a pricing structure with the main hospital groups, to deliver a savings of R242m last year. We project that this saving will increase to approximately R550m over the next two years in present value terms,” he says. • Managed Care “We place great emphasis on our Managed Care initiatives to help members, with chronic conditions, manage their health better. It takes into account the best clinical and treatment protocols while containing costs. Our back and neck, oncology, hip and knee and HIV/AIDS programmes continue
to offer our members emotional, clinical and financial support,” Van Emmenis adds. • Chronic Conditions The Council for Medical Schemes (CMS) cites chronic conditions – with diabetes in particular, as one of the key contributors to a rising disease burden in South Africa and escalating healthcare costs. “Around 80% of the Scheme’s diabetic patients have associated chronic conditions such as high blood pressure and cholesterol, heart disease and depression which need to be managed on a unique basis. Through our Diabetes Programme, hospital admissions related to diabetic patients have reduced by 11.6% year-on-year,” he states. • Prevention is better than cure According to Van Emmenis, Bonitas has a keen focus on preventative care “as early detection is a critical factor in ensuring our members get the support they need to manage any serious conditions timeously.” • Women’s Health “Last year, we kept a firm focus on women’s health introducing cover for pap smears on all our plans,” he notes. “Since cervical and breast cancer continue to be most prevalent, we have continued our efforts towards early detection by ensuring mammograms for women over 40 will be covered once every two years on all our
plans from 2019.” • Men’s Health “In addition, we have placed the spotlight firmly on men’s health, especially in light of a prevalence of prostate cancer, by adding the prostate screening antigen test to all options for men aged between 45 and 69,” he says. • GP Network Bonitas has SA’s largest GP network “which ensures our members get value for money and stretch their benefits. Our online provider locator tool has been enhanced so that members can find network hospitals, doctors and specialists in their area quickly and easily.” • Fraud, Waste and Abuse (FWA) Van Emmenis says that ongoing efforts to reduce FWA have been successful, with a number of convictions and sentencings. This significant focus delivered recoveries of R31.2m with a potential preventative savings of R75m. • Going Digital Digital remains a key driver for member and broker communication with Member, Broker and a newly introduced Corporate Zone available on the website. “The online application has been revamped, we’ve introduced an electronic membership and a live chat function has been added to assist current and potential members with any questions they
may have,” Van Emmenis explains. Besides enhancing the Member Zone as from January 1, 2019 members will have access to the Bonitas App – a revolutionary cell phone application. As a value-add for members, Bonitas has aligned itself with strategic partners to offer a comprehensive and holistic solution to help members take care of their financial health and wellness, without paying anything extra. “This is not another loyalty programme,” explains Van Emmenis, “but rather real added value aligned to member needs.” The model includes a Multi-Insurer Platform offering Medgap, exclusive gap cover with a discount of up to 48% discount for Bonitas members and a wide range of life, funeral and disability cover products through Sanlam Indie with exclusive benefits in the form of free investments up to 110% of monthly contributions – and finally, a variety of free monthly discount vouchers from 30 participating partner retailers through Electronic Line.
Gerhard van Emmenis, Principal Officer, Bonitas Medical Fund
IF IT’S NOT BONITAS IT’S NOT MEDICAL AID
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14
MEDICAL AID FEATURE
31 October 2018
A holistic, cost-effective healthcare solution
T
his year has been a rather challenging year for most South Africans as the downward economic trend has placed pressure on their overall purchasing power. This means that South Africans don’t have the same disposable income as they previously had, and one of the first options they explore to save on their monthly spend is to review or cancel their insurance policies. Healthcare cover is no exception. What we generally find is that consumers opt to downgrade their medical scheme cover, without understanding the full impact this has on the benefits they forfeit in doing so. The current medical scheme structures are rigid and prescriptive in terms of how benefits are offered, and do not provide much flexibility. Because of this, consumers are either underinsured, i.e. they can’t afford the cover they really need, or on the other extreme, over-insured, where they are paying for benefits they don’t really need or use. We often see this sort of wastage, where consumers could achieve better value for their money elsewhere. At Momentum, we understand that consumers want flexibility to structure their medical scheme benefits to not only meet their needs but suit their pockets, too. Momentum has evolved and reimagined the healthcare industry over the years to provide innovative solutions that speak to these unique needs. Momentum Health members can save up to 40% on their medical scheme contributions by making use
of the Momentum provider choice model. In fact, over the last five years, Momentum Health members have saved more than R2bn in contributions by making use of this provider choice model. When the Medical Schemes Act was passed in 1998, it allowed schemes to design integrated medical savings accounts, to fund members’ day-to-day medical expenses. At the time it was revolutionary and changed the healthcare landscape. However, in time, these medical scheme savings accounts shortcomings became evident, as members were restricted in how much they could contribute to this account, as well as what they could use these funds for. Momentum saw this as an opportunity to reimagine the ‘medical savings account’ – this is where the HealthSaver account was born. The HealthSaver account provides flexibility for members to decide how much money they require for day-to-day medical expenses and fund specifically for those expenses. It also allows them to use the funds in this account to pay for medical treatments that were not generally covered from the in-scheme medical savings account, such as cosmetic surgery. With the HealthSaver account established, Momentum then looked at alternative ways to fund the money into this account. At Momentum we believe that living a healthy, active lifestyle should be rewarding, opening the door to another innovative solution, HealthReturns.
In earning HealthReturns, Momentum Health members can fund their day-to-day medical expenses without it costing them anything more, just by doing the right thing, letting their activity fund their lifestyle. The integration of these products provides a holistic, cost-effective healthcare solution that enables people from all walks of life and business to achieve their unique financial goals and life aspirations. Momentum Health members can choose to make use of additional products available from Momentum Group (Momentum), a division of MMI Group Limited, to seamlessly enhance their medical aid. These voluntary complementary products range from a world-class wellness and rewards programme, Multiply, to the innovative HealthReturns solution. Please note that Momentum is not a medical scheme and is a separate entity to Momentum Health. You can be a member of Momentum Health without taking any of the complementary products that Momentum offers.
Damian McHugh Head: Health Sales and Marketing, Momentum
2019 increases linked to medical inflation and enhanced benefits: DHMS
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iscovery Health has announced the annual contribution increase and benefit enhancements for Discovery Health Medical Scheme (DHMS) members for 2019. DHMS members can expect a weighted average contribution increase of 9.2%. This increase includes the impact of the 1% increase in VAT, DHMS says. Dr Nozipho Sangweni, Principal Officer of Discovery Health Medical Scheme, explains: “The average increase for Discovery Health Medical Scheme members for 2019 is aimed at balancing the increasing demand for and supply of healthcare services, with the need to maintain benefits and competitive contributions for members. Our priority remains ensuring access to the best quality care for our members, and to this end we have done important work with the Scheme’s administrator, Discovery Health, to expand access to private healthcare. In addition, we have created a network of day hospital facilities where healthcare providers can provide quality care without the need for overnight stays. We have also worked hard to improve how members experience healthcare through an investment in our digital capabilities and services.”
Dr. Jonathan Broomberg, CEO of Discovery Health, notes: “Medical inflation is the year-on-year increase in the cost of healthcare claims and is critical for medical schemes, as it has a significant impact on a scheme’s ability to provide affordable cover to healthcare services on a sustainable basis.” For Discovery Health Medical Scheme, increases in the cost of healthcare claims can be attributed “mainly to more members needing to use healthcare services, and members making use of services more frequently”. Broomberg provides examples of the last two points, citing higher chronic and oncology-related claims as a significant contributor to demand-side inflation. “Claims data for Discovery Health Medical Scheme shows that the incidence of cancer in women has nearly doubled since 2008, and for men it more than doubled. At the same time, advances in medicine and medical technology, while having a positive impact on patients’ lives, increase costs substantially, since they are often more expensive than the older treatments they replace.” Discovery Health estimates total medical inflation for 2018 at between
11.2% and 12.2%, with the variance due to utilisation trends in different health plan options. However, it says that its risk management and the ongoing positive impact of the Vitality wellness programme on members’ health will reduce medical inflation by 2%, “resulting in contribution increases that are within the corridor of 3% to 4% above CPI after allowing for the required adjustment for VAT”. Broomberg adds, “Contribution increases must be seen in light of the Scheme’s historic performance and ability to keep contributions and plan benefits stable and at a high quality. The cumulative annual contribution increases for the Scheme since 2010 have remained within 3% to 4% of CPI, which is the guideline we apply for our client schemes. “They have also remained approximately 1% below that of the rest of the open scheme industry. Maintaining this differential over time means members on average paid 16.4% less for the same or better benefits in 2018 than members of other schemes.” Discovery Health Medical Scheme also announced enhancements in cover for cancer treatments for members of its Executive and Comprehensive Plans, who will
have access to cover for a wide range of additional innovative cancer treatments over and above those normally covered. In addition, the scheme announced significant enhancements to its DiabetesCare programme, as well as the launch of new programmes for the management of members with heart disease and depression. “These new condition management programmes bring together the assets of Discovery Health, DHMS and Vitality to provide enhanced benefits and incentives to members with one or more of these conditions, while also providing additional funding to their treating doctors based on the outcomes of their care.” Discovery Health also announced significant enhancements in its digital platform for DHMS members, with a focus on enhanced tools to allow members to identify appropriate healthcare professionals in their area.
Dr Jonathan Broomberg, CEO, Discovery Health
Choose health 6 reasons why a healthy lifestyle could be rewarding with Momentum Health ...
Provider Choice
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Saving members up to 40% on their medical aid
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Let your lifestyle pay for your medical expenses
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More than just another wellness and rewards programme
+ Momentum Health members can choose to make use of additional products available from Momentum Group, a division of MMI Group Limited (Momentum), to seamlessly enhance their medical aid. These voluntary complementary products range from a world-class wellness and rewards programme, Multiply, to the innovative HealthReturns solution. These complementary products are not medical scheme benefits. Momentum is not a medical scheme, and is a separate entity to Momentum Health. You can be a member of Momentum Health without taking any of the complementary products that Momentum offers.
Terms and conditions apply.
momentum.co.za Momentum is part of MMI Group Limited, an authorised financial services (FSP6406) and registered credit provider (NCRCP173). Reg no 1904/002186/06
Fedhealth. We let you be YOU.
JOIN THE MEDICAL AID REVOLUTION Forget what you know about medical aid. Fedhealth is changing the status quo and giving YOU the control to create the aid and choose the benefits YOU need from the ground up.
Thousands have already joined the medical aid revolution. If you’re ready to rebel, go to fedhealth.co.za to see their stories and to find out how much YOU can save on medical aid that’s made for all of you, and only you.
18
MEDICAL AID FEATURE
31 October 2018
Putting control back into members’ hands
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n a first for the medical scheme industry, Fedhealth has announced its 2019 benefit options that feature a revolutionary new approach, giving consumers more flexibility, choice and control. “Over the last six months we have carried out extensive research with our member base and the overriding message is that members want to be in control of their medical aid. They want flexibility and they want choice,” explains Jeremy Yatt, Principal Officer of Fedhealth Medical Scheme. There are four different benefit packages within Fedhealth’s new FlexiFED range, each featuring a core benefit bundle and day-today cover, but the most innovative feature of the FlexiFED range is the way members can choose to pay for day-to-day benefits. Traditionally, up to 25% of the members’ monthly contributions have been placed in a medical savings account that was used to pay for day-to-day benefits. For the first time ever, Fedhealth has turned this model around. FlexiFED allows members to begin paying for day-to-day benefits only when they need them. They then have the flexibility to pay back that amount over 12 months, interest free.
At a time when most consumers are struggling to make ends meet, this can make a meaningful difference to their financial position. This is a significant departure from how other medical schemes in South Africa manage their medical aid savings accounts. Traditionally, members have been charged for dayto-day benefits from the beginning of the year, regardless of whether they have seen a doctor or purchased medicine or not. Fedhealth is also now the only medical aid to offer members a significantly reduced monthly rate by introducing the MediVault and Wallet. “Based on their unique profile and the core benefit bundle they select, a pre-approved amount is placed in the member’s individual MediVault at the beginning of the year. This amount is not pro-rated and works the same as a traditional savings account, except that members only pay for it once they use it. “When the member needs to pay for day-to-day expenses, they simply transfer the funds they need from their MediVault into their Wallet and only then start paying back those funds, without having to pay interest,” says Yatt. But that is not where the revolution ends. “When it comes to medical aid, we know price is one of the most important considerations for members,” adds Yatt. “We worked hard to find innovative ways to save members money and
OVER THE LAST SIX MONTHS WE HAVE CARRIED OUT EXTENSIVE RESEARCH WITH OUR MEMBER BASE
provide them with the benefit of added choice. Our solution has been to offer four core benefit bundles, specifically tailored to different lifestyle requirements that can be personalised even further to suit individual needs.” For example, the flexiFED 1 is perfect for healthy, young single people looking for affordable, quality cover. Personalised benefits like trauma treatment, unlimited accident and emergency treatment and female contraception have been added here, for example. FlexiFED 2 is more suited to young families starting out and this option is rich in maternity benefits and some great lifestyle and childhood benefits. FlexiFED 3 has been tailored to young families making their way up in the world and also includes rich maternity, lifestyle and childhood benefits for families who are still growing. Finally, flexiFED 4 has been designed for more mature families looking for all-inclusive cover. Personalised benefits like specialised radiology, child rates up to the age of 27, unlimited network GP consults from the core benefit bundle and unlimited private hospital cover for planned procedures, etc are just some of the key features offered. All core benefit bundles come prepacked with value-added benefits covered from Risk, not from the MediVault and Wallet. Fedhealth has also introduced a Benefit Maximizer to boost the above benefits. On flexiFED 1, 2 and 3 it covers unlimited network GP visits and dentistry benefits even after a member’s MediVault and Wallet has been depleted. On flexiFED 4, claims
can be submitted to accumulate to a pre-determined threshold level, whereafter they will be paid from the Benefit Maximizer with a 20% co-payment on all claims. The final unique benefit for members is that they have the flexibilty to now choose to control their own rates. Once they have selected their core benefit bundle, they can personalise their option and create the package of benefits they need at a price they can afford. “Members save 11% of their contribution by selecting the Network Hospital Option (GRID), or they can save 25% by limiting themselves to a smaller hospital network, or just by paying an R11 500 excess for planned procedures at a hospital of their choice. The important thing for members to remember is that in the event of an emergency or accident, they can still use the private hospital of their choice.” Yatt points out that there has been little innovation in medical aid benefit design for decades and limited differentiation between schemes. “While many claim that benefits can be personalised, the reality is that members only have the choice of options that suit a generic life-stage category. There is little transparency and members have limited control over how their money is allocated,” he says. “FlexiFED represents a completely new approach. We believe it is going to transform the industry and change the way medical aid benefits are structured in the future,” concludes Yatt.
Jeremy Yatt, Principal Officer, Fedhealth Medical Scheme
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To win a copy of Everything you need to know about non-life insurance in South Africa, send an email with the name of the book in the email’s title to janice.roberts@newmediapub.co.za THE SENDERS OF THE FIRST FIVE EMAILS WILL WIN COPIES OF THE BOOK.
SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.
31 October 2018
LICENCE TO LOOT BY STEPHAN HOFSTATTER Eskom, the giant power utility that drives the economy, holds the key to inclusive growth and shared prosperity in South Africa. Instead it has become the site of corruption so rampant that it threatens the entire country’s wellbeing. Award-winning journalist Stephan Hofstatter’s hardhitting investigation traces the genesis of the Eskom looting spree from Transnet, where the blueprint for parastatal plunder was developed and refined with the help of top-dollar consultancies. From there he explores how the Gupta family extracted billions in suspected kickbacks from state contracts and scored hugely inflated coal contracts from backroom deals. He also examines how Eskom’s top brass enriched themselves and their families at the power utility’s expense. Licence to Loot delves into the secrets of the fixers, deal makers and bribe masters behind this epic pillaging of the public purse, and maps out the intricate network of executives, board members and cabinet ministers who facilitated it.
ACROSS BOUNDARIES: A LIFE IN THE MEDIA IN A TIME OF CHANGE BY TON VOSLOO Ton Vosloo is one of South Africa’s most widely admired newspapermen and businessmen. Under his leadership, Naspers evolved from a print group into a media giant with investments across the world. In his memoir, Vosloo tells the story of his remarkable career, spanning fifty-nine fractious years – years that saw a great many changes in South Africa, in the media and politically. Born in 1937 in Uitenhage, Vosloo started out writing sports reports for local newspapers while he was still at school. Once he had cut his teeth in newspaper journalism, his career took him to Parliament, where he worked as a parliamentary correspondent, and then on to editing Beeld, the popular Afrikaans daily. In 1970, he was awarded a Nieman Fellowship at Harvard University; it was during this time in the USA that he became increasingly aware of the unsustainability of apartheid. In 1983, Vosloo was appointed managing director of Naspers and set about vigorously transforming the company. On the commercial front, with Koos Bekker and other media companies, he established M-Net, the country’s first pay-television network. In 1992, Vosloo became chairman of Naspers, with Bekker later succeeding him.
THE TEAM SECRET: ACCELERATE YOUR BUSINESS WITH SPECIAL FORCES PRINCIPLES BY KOOS STADLER AND ANTON BURGER The South African Special Forces achieved exceptional results with small groups of elite soldiers instead of larger, conventional teams. The Team Secret shows that the same principle applies in the business world – a small team has a much better chance of completing projects efficiently, on budget and on time. Teams, rather than individuals, form the DNA of many companies and they play a pivotal role in achieving strategic and financial success. Like Special Forces teams, they must function as a well-oiled machine firing on all cylinders. Koos Stadler tells in captivating detail about a real-life Special Forces operation and the lessons learnt about team dynamics and achieving the goal. His story, combined with anecdotes from Anton Burger’s experiences as a team leader in different work environments, show the many lessons the business world can take from the Special Forces.
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Invest for Income Contact our Communication Centre on 0800 336 555 or visit www.marriott.co.za The First World Hybrid Real Estate Plc is a Regulated Fund, which is subject to the isle of Man Collective Investment Schemes (Regulated Fund) Regulations 2017. The manager of the Fund, FIM Capital Limited, is required to be an authorised person for the purposes of the Collective Investment Schemes Act 2008. The Manager’s appointment to this fund has been approved by the Isle of Man Financial Services Authority. Collective Investment Schemes (“CIS” or “Fund”) should be considered as medium to long-term investments. The value of an investment in Shares may go down as well as up and an investor may not get back the amount invested. An investment in the Fund involves a degree of risk and there is no guarantee against loss of an investor’s entire investment. There can be no assurance that the Fund will achieve its investment objectives. The Fund may borrow money for the purpose of achieving its investment objectives. Such borrowing may only be made from an eligible institution or an approved bank and may be on a temporary or a permanent basis. Potential investors should review the Offering Document for detailed information on the risk elements of investing in the CIS and consult with their own counsel and advisers before deciding to invest in Shares. For additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.marriott.co.za. First World Hybrid Real Estate Fund Plc is approved in terms Section 65 of the Collective Investment Schemes Control Act. Marriott is an authorised financial services provider and is registered and approved as a Manager under the Collective Investment Schemes Control Act.