TAKING COVER - JSE MAGAZINE

TAKING COVER

Companies need to be adequately protected against all manner of eventualities when operating in Africa. But where to start looking for appropriate insurance policies?

TAKING COVER

When you open a business in another country, you do not want to lie awake at night worrying about the health and safety of your employees, what might happen if your operations are brought to a standstill, or if the country you are working in experiences political unrest that negatively affects your venture.

To mitigate against these and other possible scenarios, insurance companies offer a range of products and services. Some of the risks that need to be considered include theft, liability, property and equipment, business interruption and, of course, personal accident. Some of the lesser-known risk categories include political risk, trade credit risk, and kidnap and ransom.

Insuring operations, equipment and employees in Africa can be complex and expensive, depending on the extent of the cover taken. John Lentaigne, chief underwriting officer at the African Trade Insurance Agency (ATI), says that in the late 1990s, the perception outside of the continent was that the whole of Africa was ‘riskier than Serbia’, which was then embroiled in the Kosovo war. ‘This perception was out of step with the reality on the ground [where] Africa was experiencing greater economic growth,’ he says. ‘This perception problem partially impacted on countries’ ability to attract foreign investments and export their goods.’ Lentaigne says a World Bank-funded study initiated by COMESA countries backed up this theory. COMESA is the Common Market for Eastern and Southern Africa, a free-trade area comprising 19 member states. ‘As a consequence, these countries, with World Bank support, created ATI in 2001 to provide investment guarantees and other products to calm the fears of investors.’

One of the first types of cover introduced by ATI was political risk insurance. It was soon followed by trade credit insurance products to help exporters and others to do business on credit terms.

‘These products allow companies to do business confidently outside their own region with the security of knowing their non-payment risk could be covered,’ says Lentaigne. ‘In short, what we do is increase the confidence level of investors and others who want to do business in Africa.’

According to Lentaigne, political risk insurance protects investments, projects, assets and contracts against any wrongdoing by a government that could negatively impact these business interests. It also covers loss due to civil war. Trade credit insurance protects against non-payment risks. It also allows clients to obtain valuable credit information on buyers, access financing on improved terms and receive help in debt collection.

Lentaigne says that banks and financiers comprise a large proportion of ATI’s client base because, under Basel regulations, they are entitled to offset their lending with the use of insurance instruments. ‘Locally, within Africa, we’re seeing a much more robust uptake of this product as these companies strive to increase their lending and become more competitive,’ he says. ‘Increa­singly we are also working with international export credit agencies and large insurers, where we typically provide re-insurance support. We also support multinationals operating in many countries in Africa. Our products help them to export to different markets, protecting them against the potential of non-payment. These companies include steel producers, telecommunications companies and manufacturers.’ He adds that local African exporters have also benefited from ATI’s products. ‘Here we help companies trade on credit terms so that they do not have to utilise all of their cash while waiting to be paid by buyers,’ says Lentaigne. ‘This is an area where the continent is lagging and where we hope to continue to innovate in order to find new solutions to this challenge.’

Quinten Matthew, executive head of Santam Specialist Business, says his unit focuses on the insurance of large and complex risks in niche market segments. ‘Underwriting these classes of insurance requires skilled resources to assess and quantify the risk and exposure as provided by the unit’s under­writing managers and niche business units,’ he says, adding that products are client-driven and supported by bespoke underwriting to demonstrate an understanding of this unique claims environment.

The bouquet of products and services offered by Santam Specialist Business includes marine underwriting for cargo, hull and liabilities; engineering underwriting for engineering insurance solutions; aviation cover for hull, third-party and passenger liability insurance; property insurance solutions; surety solutions for large industrial and corporate businesses; bonds and guarantees in the way of surety solutions including construction guarantees, contract bonds and court bonds, and heavy commercial vehicle insurance.

Santam’s specialist underwriting management agency, Stalker Hutchison Admiral (SHA), offers kidnap and ransom insurance. Dave Honeyman, executive head: accident and health at SHA, says many businesses are not aware that they can purchase insurance to cover the expenses should someone in the organisation be kidnapped. He says kidnap risk in Africa is increasing all the time. ‘Because people are travelling to countries and areas they may not be familiar with, they become vulnerable to risk and an easy target.’ The chal­lenge with this type of insurance is that one has to be careful not to encourage kidnapping because there is insurance. ‘Confidentiality is an utmost priority and it is a firm condition by the insurance provider that only key personnel are aware that the cover is in place,’ says Honeyman.

According to Jason Veitch, MD of Travel Insu­rance Consultants (TIC), insurance that covers medical emergencies or other medical-related incidents is one of the most important for com­­panies with operations or employees abroad. ‘When companies send employees abroad, their medical well-being is one of the company’s main concerns,’ he says. While TIC offers cover for individuals travelling for leisure purposes, it also offers cover for the small business market whose employees travel occasionally, and for larger corporates who send employees abroad often and for longer periods. Veitch says such corporates generally have a corporate plan that covers them for an entire year, as well as staff who travel throughout that year. While the primary purpose is medical and emergency cover, incidentals such as luggage cover, loss of corporate tools and travel curtailment are also included.

Hollard, one of SA’s largest insurers, offers products and services on an individual and business level. It currently operates in Botswana, Ghana, Mozambique, Namibia and Zambia. In Mozambique, Hollard offers marine and cargo insurance, engineering insurance, financial bonds and guarantees, and business travel insurance. Its engineering offering includes building, civil and mechanical engineering projects. The cover extends to works, third-party liability, advanced loss of profits, plant and machinery, breakdowns of machinery or electronic equipment that result in profit loss, and performance guarantees.

Allianz Global, through Allianz Africa, operates in Benin, Burkina Faso, Cameroon, Central African Republic, Congo, Côte d’Ivoire, Ghana, Kenya, Madagascar, Mali, Senegal and Togo, and offers tailored insurance cover for a variety of businesses. Its commercial cover, for example, caters for medium to large businesses, providing property, casualty and motor insurance risk management services. It also offers constructors all-risk and engineering cover, and cargo and aviation cover.

Lentaigne says it is crucial for companies to do their due diligence before entering new markets in the African region. ‘There really is no substitute for having trusted boots on the ground that can give reliable information,’ he says. Whether the client is an investor or a manufacturer, Lentaigne says ATI always recommends that transactions be covered with insurance. ‘This is important because when you enter a new market, particularly in the emerging market context, there are so many unknowns. Insurance can alleviate a large portion of these concerns and allow companies to focus on growing their bottom line safely,’ he says.

Veitch highlights the importance of ensuring cover is both adequate and appropriate. He says it is often necessary to distinguish between the type of cover for blue-collar and white-collar employees, because their level of exposure to risk differs. Blue-collar workers, for example, are exposed to different risk scenarios purely because they engage in different activities to white-collar employees. He also stresses the importance of undertaking a pre-assessment of the territory before beginning operations.

‘A pre-assessment of where you will be operating, and informing your insurer of where you will be operating, is important so that the insurer can plan and execute on the event to ensure a successful outcome,’ he says. Companies that fail to do the risk assess­ment and inform their insurer appropriately regarding the desired or required insurance cover will have problems in these territories, he says.

By Toni Muir
Image: Muti