Sustainability of the Short-Term Insurance Industry
The Strategic Risk Forum
Education
Collaboration
Response
Business
Presented by: John Melville
Executive Head: Risk Services, Santam
Chairman of the SAIA Strategic Risk Forum
11th June 2012
Short-term Insurance
Strategic Risk Forum
THE ROLE OF INSURANCE IN THE ECONOMY
• A collective ‘safety net’ and a
lever of economic and social
development
• A key enabler and transmission
mechanism for economic activity
• A catalyst in the financial and
investment flows needed for
sustainable development
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
KEY CHALLENGE
AN INCREASING LEVEL OF SYSTEMIC RISK
Driven by the growing
interconnectedness
between the physical,
economic and social
environments in which
we live
Source: WEF Global Risk report 2012
Many people still do not have access to the collective ‘safety net’
and are therefore exposed to the increasing level of risk
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
TOP 10 STRATEGIC ECONOMIC SOCIAL GOVERNANCE RISKS
Legislation & regulatory capacity
Image & reputation
E
G
Information management
G
Increased crime
and corruption
G
Human capital & skills
How we manage our impact
on the environment
G
E
SA
insurance
industry
S
S
Lack of investment &
maintenance of infrastructure
Dual economy
S
S
Lack of transformation
No real market growth
THERE ARE STRONG LINKS TO THE RISKS IDENTIFIED BY THE NATIONAL PLANNING COMMISSION
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
KEY STRATEGIC QUESTIONS FOR US
Do we sit passively and watch the world unfold for us?
OR
Do we act proactively to become shapers of risks by:
• Understanding these risks
• Sharing this knowledge
• Developing strategic responses
• Driving or contributing towards implementation
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
STRATEGIC RISK FORUM
• SAIA AND FIA ESTABLISHED AN INDUSTRY FORUM TO:
Engage on strategic risks to our sustainability
Understand what is being done to mitigate these risks
Initiate interventions collaboratively to mitigate these risks
This initiative and decision was a world first
and lauded by UNEP FI, and is now being
followed in other territories – Brazil, Australia
and New Zealand
Short-term Insurance
Strategic Risk Forum
COLLABORATIVE KNOWLEDGE SHARING AND PLANNING
7th March 2012
17th Nov. 2011
1, 2nd Sept, 2011
Understanding ESG Risks
• Environmental Risks –
Urbanisation
• African Centre for Cities;
University of Cape Town
• Social Risks
• National Planning
Commission perspective
• Governance Risks – ESG
on the bottom line
• South African Association of
Chartered Accountants
Our changing landscape
• Our changing landscape:
Cities
• CSIR
• Climate Change, Cities,
Risk
• African Centre for Cities
University of Cape Town
(UCT)
• Energy and Climate:
Change is the new Normal
(case study)
• Pretoria Portland Cement
Company
• Building Sustainability
Indicators
• Marsh Risk Consulting
Public Private Partnerships:
National Disaster
Management and STI
Industry
• Deputy Minister of
Cooperative Governance
and Traditional Affairs
(CoGTA)
• Chairman: Strategic Risk
Forum
• Munich Re of Africa
• Economist Agri SA
• National Emergence Red
Meat Producers
Organisation
• Santam
• SALGA
• The World Bank
Investing for Adaptation
and mitigation
Short-term Insurance
Strategic Risk Forum
THE STRATEGIC RISK FORUM
STI Risk Drivers
Dashboard
Changing Landscape
2 year industry wide
ESG Risk review
Strategic Risk Forum
Steerco Strategic Risk Forum
Environmental
Social
2 year rolling Global and
local Stakeholder Analysis
Governance
Motor
Reinsurance
Expertise shift – Human
Capital Development
Delivery / Implementation
Value Chain Readiness
Funding
methodology
Governance, Controls, Technology Support , Information Management, Client
Research Methodology, Central Analytics
Enabling / dis-enabling
frameworks/policies
SAIA: Position
Paper
Global and local partners
Industry solution
SAIA: Trading Brief
Other
Short-term Insurance
Strategic Risk Forum
THE FOCUS AREAS
Active engagement with the
representatives in the value chain
FIA, SAIA, SAUMA, IISA,
National Treasury, FSB, Scientists,
academics, government, NGO’s
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
AGRI INSURANCE PPP
CROP INSURANCE CO-FINANCING
PARTNERSHIP BETWEEN GOVERNMENT
AND THE INSURANCE INDUSTRY TO:
•
enhance food security in SA
•
increase access to insurance and making
farming more viable
•
incentivise responsible environmental practices
by farmers
•
grow the crop insurance market
•
manage the ‘contingent liability’ on the national
balance sheet
Short-term Insurance
Strategic Risk Forum
CROP INSURANCE IN SOUTH AFRICA –
LOW CURRENT MARKET PENETRATION LEVELS
Country
USA
Canada
China
Spain
France
Italy
Russia
India
Brazil
Germany
Argentina
Mexico
Australia
South Africa
Austria
Republic of Korea
Turkey
Total
MPCI [m€]
Hail [m€]
Total [m€]
Market Penetration [%]
5.401
1.038
1.019
430
160
165
217
182
142
5
3
114
0
21
20
56
486
193
0
0
170
115
0
0
39
159
116
0
104
72
68
0
5.887
1.231
1.019
430
330
280
217
182
182
164
119
114
104
93
88
56
80%
60%
25 %
55% (incl. Livestock)
32% MPCI / 55% Hail
19% Hail / 1% MPCI
10%
20%
12%
61% (crop hail only)
45%
8%
80%
33%
79%
72%
43
3
9.016
1.525
46 Insurance
Short-term
10.541
Strategic
Risk Forum
5%
SUSTAINABLE AGRI INSURANCE
WHY: Higher penetration in the crop insurance market = multiple benefits
Proposed solution: Public-Private Partnership (PPP)
Public Sector
Cimate Change
Weather Risks
Specialised
PPP
crop
insurance
1.
2.
Market Risks
3.
crop insurers
Farmers
Agrifinance and Agribusiness
4.
5.
6.
Integrated in agricultural policy
and law
Public co-financing of premiums
and cat losses
Transparent, uniform terms and
products
Open to all farmers
Comprehensive coverage
benefiting individual farmers
Operated through specialised
crop insurers
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
360 DEGREE VIEW OF OUR CHANGING LANDSCAPE
WHY: Insurance is a key point of leverage in building resilience in a changing landscape
(Fire, drought, storms, flood, tremors)
Strategic Risk Forum Think Tank
Enabled by collaborating effectively with the
many stakeholders involved in managing risks
(Industry representatives, CSIR, UCT,
government etc.)
Understand
Nov 2011
Collaborate
Q1 2012
Establish principles with NDMC
and SALGA for a cooperation
agreement
Develop MOU with CoGTA
Business
PPP initiation
May 2012
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
COMMUNITY RISK INSURANCE
WHY: Demonstrate how simple insurance can help break some
of the poverty traps many of our communities find themselves in
•
•
•
•
Learn how to provide simple insurance in vulnerable communities
who are not touched by insurance
Promote risk management in the communities
Provide employment to the unemployed (especially youth)
Partner with Dept. of Cooperative Governance using Community
Works Programmes (CWPs) & promote financial inclusion
Identification of key partners
2012
Robust public-private
partnership
Mechanism with
municipalities
Design concept
Community Risk
2013
Local human capital development
Shared risk through PPP
Pilot
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
PRINCIPLES FOR SUSTAINABLE INSURANCE
UNEP FI insurance
commission established
Global consultation on
sustainable insurance
2007 - 2010
2011
Raised awareness of the
contribution that the insurance
industry is already making to
sustainability and get the
industry engaged on this topic
March:
SA hosted the first of these
consultations on behalf of the
African insurance industry
December:
A final set of PSI was agreed
in Zurich, Switzerland
PSI launch
2012
PSI to be launched
at the Rio+20
summit in just over
a week’s time
Short-term Insurance
Strategic Risk Forum
WHAT ARE THE PRINCIPLES FOR SUSTAINABLE INSURANCE?
Embed in our decisionmaking environmental,
social, and governance
issues relevant to our
insurance business
PSI
Demonstrate
accountability and
transparency in regularly
disclosing publicly our
progress in implementing
the Principles
Work together with our
clients and business
partners to raise awareness
of environmental, social and
governance issues, manage
risk and develop solutions
Work together with
governments, regulators
and other key stakeholders
to promote widespread
action across society on
environmental, social and
governance issues
Short-term Insurance
Strategic Risk Forum
CAN WE REALLY MAKE A DIFFERENCE?
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
LOCAL EXAMPLE: BUSINESS AGAINST CRIME
A CONDUIT FOR ENGAGEMENT BETWEEN GOVERNMENT & BUSINESS ON CRIME
– Support businesses in getting their own house in order in terms of crime prevention
– Partner with government by sharing expertise, information, processes and technologies
Success is
evident in the
fight against
crime
Source: BAC
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
CALL TO ACTION!
There is the potential for the insurance industry
to demonstrate its true value…
Let’s PROACTIVELY and POSITIVELY
influence the world in which we do business
Let’s get involved with the RISKS
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
WHAT CAN YOU DO?
Get involved with others via the Forum to contribute, learn and
apply knowledge regarding relevant risks in your business and
broader environment
Implement the Principles for Sustainable Insurance (PSI) and
become a signatory
Do your own risk assessment as recommended by the PSI
BE A SPOKESPERSON FOR THE TRUE VALUE OF INSURANCE
Short-term Insurance
Short-term
Insurance
Strategic Risk
Risk Forum
Strategic
Forum
THANK YOU
Short-term Insurance
Strategic Risk Forum