Changing times force changing behaviours

A new operating environment, both economically and demographically, is creating some real challenges for business from all sectors. The question facing delegates at Commercial Risk Africa’s recent Risk Frontiers Southern Africa event was not only whether their business is facing up to these, but whether they themselves as risk managers are in the best position to leverage the opportunities The risk of becoming uninsurable looms large among southern African risk managers, as insurers change their risk appetite in the wake of a series of large losses. The picture is far from uniform, however. In Botswana, competition for business at any cost remains rife. This does not mean Botswana’s businesses are escaping from the changing times. Instead, they are discovering insurers want a far greater focus on risk management but also that things can get tricky at the point of claims. “It is regrettable to say incidences of large disputed claims are on the increase,” warned Charlton Dzwairo, divisional director at Marsh Botswana. Speaking at Commercial Risk Africa’s Roadmap to Success seminar in Gaborone, he suggested to risk managers that “the tendency of insurers to be difficult on large claims is particularly a concern”. Mr Dzwairo said: “The latest report from Botswana’s insurance regulator states that the incidence of clients approaching the regulator as an arbitor for disputed claims is on the increase. In the report, the regulator makes it clear it would prefer a mechanism where underwriters self-regulate and subscribe to the prudential rules set down in the Act.” However, a landmark ruling from the High Court of Botswana could change insurers’ approach, as it underscored that the regulator in Botswana has absolute authority to direct how to settle a claim in terms of quantum and liability. Martin Wright, a consultant at Western Insurance, said the question is so important because of the increasing numbers of high value claims coming through. “Our pattern has been fairly similar to South Africa where we have had floods for several years and also a major storm.” He added that, working with a local insurer: “In the first six years we never had a catastrophe claim on reinsurance treaties but in 2016 and in 2017 we suffered very severe storms and hails, which resulted in claims. “When it came to renewal we were rather surprised to see a reduction in premiums rather than an increase,” he added. “Generally speaking,” Mr Wright said, “rates have been eroded over the years by competition and other issues. “Fortunately, the industry is coming to its senses and is beginning to realise that these rates as well as terms and conditions are unacceptable. The Botswana market is not bailing out the SA market, but we inevitably will have to start looking at premium rates far more sensibly or reinsurers will simply not accept business from Botswana.” Mr Dzwairo said insurers are beginning to make more demands on their insureds, particularly in terms of risk management: “A lot of insurers are introducing warranties that require clients to put in place stringent mechanisms around risk management. Failure to comply with these risk management demands results in claims being repudiated.” He believes there is more scope for clients to work hand in hand with corporate insurance advisers to put in place a lot of controls on the risk management front. “Clients are trying to drive the premium cost downwards but that can only happen when insurers are reasonably satisfied that a risk management framework is firmly and deeply entrenched,” explained Mr Dzwairo. He continued: “Generally, we are seeing increasing incidence of large claims. Within Marsh we have a software system that automatically reports claims in excess of BWP500,000 ($46,272.8) to management, so management are aware of claims patterns. “Five years back, that report would come in once a week; but of late we have had to benchmark to BWP1m because claims of more than BWP500,000 are so much more frequent.” But he warned that, while there is a lot of insistence by insurers for clients to introduce more risk management, clients themselves are investing less in risk management, preferring to invest in other initiatives. However, despite the drive to improve standards, Mr Dzwairo said competition between intermediaries and underwriters remains fierce, with a lot of new entrants in the market. “If you look at supply and demand, premiums rates are probably at their lowest thanks to the aggressive price competition,” he suggested. Mr Dzwairo said competition is particularly fierce if a company (or the government) puts their insurance portfolio out to tender. Hence, he said: “It is creating a huge strain on the insurers’ ability to settle claims fairly, honestly and capably.” In terms of what claims are coming through, Mr Wright said: “We have been seeing more fire claims. In the past we would only see one or two of more than BWP500,000 in value, but now these claims are for more than BWP1m.” He agreed that some of the cost of fires comes from business interruption (BI). “International clients are taking out BI policies and we are seeing cases where the major loss is not material damage but loss of profit arising. As an industry we need to advise clients properly,” Mr Wright suggested. So far in Botswana, the fire claims have centred on the property losses rather than BI. Another issue where the numbers of claims is increasing very dramatically is workers’ compensation. Mr Wright said loss-of-hearing claims, in particular, are fuelling this growth. He said: “Where an employee is claiming for hearing loss that is determined to be as a result of the working environment, one can understand it if we are talking about mining but smaller companies are now experiencing staff making claims for loss of hearing where you have to question the validity.” Mr Wright added that the workers’ compensation commission is not necessarily investigating claims as much as it should but is instead simply giving a percentage of the award, even in cases where, the chances are, the loss of hearing is not from the workplace. In South Africa, the mining houses have just agreed a major settlement for those affected by the lung disease silicosis. Mr Wright said workers’ compensation people in Botswana have been in touch with Chamber of Mines in South Africa because many of the miners were from Botswana. And the Botswana government is also reviewing the Workers Compensation Act and considering the level of benefits. The present limit for payouts on death is BWP250,000 but could become unlimited – something Mr Wright said would have a big impact on premiums. Cyber crime In terms of other claims, Mr Dzwairo warned: “Another one rearing its ugly head is cybercrime. A leading institution last month suffered a major breach that exposed personal data of thousands of its clients in both South Africa and Botswana. So we are getting a lot of inquiries about cyber risk and what solutions are available.” Premiums are relatively low at the moment, but Mr Dzwairo said that could well change as insurers develop a better picture of the true cost of claims and also of potential exposures. The Botswanan government has recently passed a new Cybercrime Act. “For the longest of times there was no specific statute,” said Mr Dzwairo, “but it is available now. “Under the act there is huge responsibility on corporate entities to ensure security of data for clients and third parties, including suppliers and employees. This act lays down very punitive penalties in instances where organisations don’t take sufficient security measures. “We are seeing a lot of enquiries for quotes, so I think cyber is no longer a risk or a threat but is something that is here and I think it’s clear that boards of local companies are seeing cyber high up on the risk spectrum.” Finally, another threat that has loomed large on the horizon in the past year is the increase in the number of Botswana-registered vehicles that are being stolen in South Africa – a lot of them at gunpoint or with violence. Mr Dzwairo said: “We have recommended ways to mitigate risks. If you need to drive to Johannesburg, for example, you should hire a South Africa-registered car, as foreign-registered vehicles are seen as easy targets. “On a weekly basis we are getting very expensive Botswanan cars and trucks being stolen. It is introducing a sense of sombreness – we are slowly seeing motor insurance premiums firming up from low premium rates.” Overall, regardless of the type of claim, both Mr Wright and Mr Dzwairo agreed there is demand from insurers for a greater focus on risk management. Marsh’s Mr Dzwairo said: “They want investment in risk management. A lot of clients in mining or construction don’t have a risk department or even an individual managing risk. Typically, the focus is purely on production; there is nobody standing on the other side of the line analysing risks. This needs to change. “One of the things the broker has to do is to sell the risk management proposition. When underwriters are convinced the company performs to high standards of risk management, they will have more confidence and it is likely that company will get better rates.” Another area where strong risk management pays off is in terms of excesses. Mr Dzwairo explained: “If a client agrees to absorb first BWP500,000 or BWP1m, we tend to find that insurers look at the client with more serious eyes. They want a client to assume a certain level of risk, so they know the client will have a risk management culture. “There is scientific risk-bearing analysis that will compute a voluntary excess without causing a strain to the balance sheet.” Finally, he suggested: “There is a choice of insurer and broker. In Botswana, we have had a couple of incidences of insurer failure, or of insurers who have come and gone. “It is not just about which insurer is cheapest, but companies must do independent due diligence of the brokers and insurers that you intend to use. We should not just get into bed with the cheapest.”

Changing times force changing behaviours

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