A focus on areas of expertise

Aon does not intend to be ‘all things to all men’ as it grows in Africa but will rather focus on key areas of expertise and growth, according to Joe Onsando, Chief Executive Officer of Aon in Africa. He sees growth in three key areas for the business; infrastructure development, intra African trade and the emergence of the African middle class. The infrastructure growth is largely fuelled by demand for natural resources from the emerging markets of Asia. “There is huge infrastructure development occurring across the continent, predominantly in areas like road, rail and energy which is supplying the construction industry. This is because of the high demand for natural resources which are finding good prices in India and China to feed their economies,” he said. But, perhaps more positively for Africa, there is also a fast growing trade between African nations themselves within and between the four regions of north, east, west and south.hide“There has been a huge investment made by South African companies as they expand into west Africa and also big investment from west to east Africa and from the east to other regions. Only three weeks ago seven private jets landed at Nairobi airport carrying Nigerian business people keen to invest in Kenya because it has the highest rate of return in the world,” explained Mr Onsando. New oil and gas fields in countries such as Mozambique and off the coast of Kenya and in Uganda mean pipelines need to be built and road and rail transport created or upgraded. This has led to big opportunities for local suppliers with imagination and skills. “We had a small family-owned freight forwarding company in Uganda, for example, which to be honest was a bit of a difficult client. But there was a recent oil fire disaster in Uganda and this company won a contract to distribute oil as a result. It suddenly grew from a firm with a fleet of 30–40 lorries to one with a fleet of 300 and is doing very well. This is happening all across the continent,” said Mr Onsando. The emergence of an educated and forward thinking middle class is another big opportunity, said Mr Onsando. “Obviously there are still pockets of poverty all over Africa but there is a massive opportunity for whoever does it right. Europe has been caught napping in this respect whereas China, India and the Japanese have set up assembly plants to sell technology products in particular and this is creating employment and sparking growth in local economies. We are working with multinational companies and holding the hands of their local companies as they move out of their comfort zones. Our network of local offices and partners really helps in this regard,” he explained. Aon does not have an office in every African country and so, like all the leading international brokers and insurers, relies on a network of partner companies to help deliver the goods for such customers. The effective management of such networks which represent the global brand is a key role for managers such as Mr Onsando. He said Aon has a ‘very robust’ network. It currently owns companies across 15 countries and 16 correspondent offices. Some markets have become so important that the broker has no choice but to expand. The group is currently considering acquisitions in Nigeria and Ghana for example, two of the biggest and most vibrant markets on the continent. The broker is also segmenting the business to ensure customers receive the right type of service for their needs. It has, for example, imported the Aon Worldwide affinity model for the growing middle class customer base and has created a specialist unit across the continent for larger, multinational accounts. This operation is under the leadership of Darlington Munhuwani, Head of Aon Global Client Network in Africa, who is based in Johannesburg. Not surprisingly given the high level of interest in Africa currently, this is a fast-growing business. Mr Munhuwani and his team are closely exploring, for example, how to use the rich resources offered by Aon Benfield, the group reinsurance and capital markets operation, to deliver fresh capacity for large corporate African risks. LOCAL FOCUS Another area of growth is human resources and employee benefits. The investment in Africa needs to be backed up by skilled and knowledgeable people which means companies need to bring skilled expatriates in to nurture and train local staff. To help manage this, Aon is working closely with Aon Hewitt, its human resources and employee benefits arm, on a global basis. “Companies with cross-border activity want one uniform HR activity across countries and so this is proving successful,” said Mr Onsando. Mr Munhuwani pointed out another key role of the management is to ensure skills and services are effectively ‘cross-pollinated’ to the benefit of customers all over the continent. “We are tapping into the Aon global system and have a fast track training process to help ensure we can deliver what is needed, when it is needed,” he said. So what are the big risks that Aon’s large corporate customers face when they set up shop in Africa? Mr Munhuwani said clearly there is still a perception that it is difficult to do business in Africa and this is not helped by events such as the tragic terror attacks in Nairobi and Nigeria recently and industrial action and riots at mines in South Africa. But he argues the perception, fuelled by news headlines, can be inaccurate. “When you break down the real situation by countries and individual risks then the scenario is better than many imagine,” he said. One of the trickiest risks faced by multinational companies when they do business across Africa is insurance regulation, said Mr Munhuwani. “Insurance placement can be difficult,” he said. “If a company wants to use a master policy they will find that there are local regulations in each country that specify that risks need to be insured locally at least up to a certain level before they are insured internationally. Most clients are not aware of this and think they can simply place all the risk with the master policy,” he explained. Political risk and areas like kidnap and ransom are also often sensitive when dealing with multinational customers because, as noted above, the perception drawn from international press reports can often magnify the risk beyond reality. “At the end of the day risks are risks and you should be able to deploy the same risk analysis and management skill sets in Africa as you do in Europe to help you transfer them,” said Mr Munhuwani. Mr Onsando added the recent terror attack in Nairobi was the first in Kenya for some time, since the US embassy attack in the 1980s. He pointed to the similarity with the attacks in Mumbai recently and said this simply underlines that it could happen anywhere. “Such attacks are very hard to police and prevent. Kenya is a big country and is next door to the failed state of Somalia. But it’s not as unstable as six to seven years ago. Arguably this attack is the last death throw of a dying organisation, it is hopefully on its last legs. Many Kenyans did not support the move into Somalia to hunt down terrorists two months ago but now they support such activity,” he said. A third challenge is credit risk, explained the broker. “Some markets are not well regulated and there can be issues involved with payment for transactions, for example. Most markets are cash-based and there is not a good database of the rules,” he said. Mr Onsando also pointed out insurance buyers and their brokers have to consider the security of local insurance markets and this is where local knowledge and contacts really come into play. “The customer expects their local adviser to tell them who to place the business with and how much. The broker needs to have an intelligent connection with the regulators so they can sit around a table and discuss things. The importance of this often only really becomes apparent after a major loss,” he explained. Mr Munhuwani said, because of all these ‘soft’ factors customers have to expect, the cost of creating policies that may fit into a global policy can be higher than expected. “When you are fronting a policy in the Democratic Republic of Congo, for example, there is only one local insurer to which you have to pay 30%–35% of the premium and this is not cheap,” he said. “It’s exploitation, make no bones about it!” added Mr Onsando. This is why the choice of local broker is so important, added Mr Onsando. “We have been in Africa for a long time in one form or another. Because of this experience and local knowledge it is possible to cut costs by pushing back. Sometimes you need to play hard ball,” he explained. There is rising frustration among insurance managers globally about the patchwork quilt of local insurance regulations and protectionist policies adopted in many emerging markets. Multinationals argue protectionism simply inhibits the growth of trade and the local economy. Locals argue immature markets need to be protected from international business that wish to export all the premiums, profit and therefore value. Some insurance experts have argued it is time for the rest of Africa to join the French-speaking CIMA countries and create a basic set of principles for national insurance regulators to abide by that protect local insurance markets but also make it easier for international businesses to manage their risks. Mr Munhuwani does not believe such an initiative will happen in the near future. But he did say the creation of regional economic blocks across the continent is fuelling a form of competition for international investment that could have positive effects. ANTI-HOSTILE “This could influence changes in regulations to capture foreign investment. If a market is seen as hostile then investors will not come so there could be efforts to present a more positive image,” said Mr Munhuwani. Despite the regulatory barriers to international insurance and reinsurance capacity in many African territories there is still excess capacity available for traditional risks, said Mr Onsando. This is largely because of the relative lack of catastrophic exposure and also because insurance markets, such as the vibrant South African market, are investing throughout the continent. Mr Onsando also said the big international reinsurers are also now back in Africa after a quiet period. Another positive factor is the existence of regional insurance pools such as the west African Insurance Pool (Africa Re) and others in eastern and southern Africa. These pools were set up in the 1970s to foster more local involvement and are showing positive signs of growth currently. This emerging local capacity, the re-emergence of reinsurance capacity and hunger for fresh premiums from the leading international insurers means Aon and its rival brokers have plenty of options for the fast growing pool of corporate risks in Africa. There are still plenty of obstacles to overcome as local markets, politicians and regulators work out the best ways to work with the international markets. But the insurance market is moving in a positive direction in most African territories and this can only be good news for local and international companies keen to tap into the wealth of opportunities currently on offer in a risk-managed way.

A focus on areas of expertise

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