Karl Bishop, head of niche business at Santam’s specialist business division, on its African expansion plans, covering multiple-risk factors and underwriting infrastructure projects


Q: Infrastructure development in Africa is prioritised as a means to attract fDI. Where development funds are sourced outside of Africa, are such projects being insured by African organisations?
A: This is a very important issue and one that we are very concerned about. International funders usually satisfy their insurance needs outside of Africa, and this should not be the case. This changes an African development into an American or European one and worse, funds are leaving the continent. The first part of our African growth story is to ensure that foreign finances for insurance remain on the continent, and we believe there is no reason this cannot happen. The local expertise and knowledge is excellent and that includes our competition.

As more international investors turn to Africa for growth, because of the continent’s emerging market status, we must steer them towards partnerships with African organisations, be that reinsurers, brokers or underwriters.The South African Insurance Association is driving that message at National Treasury level to ensure it creates awareness with our insurance partners in African nations and promotes legislation that forces percentages to be placed locally.

Santam has a voice within the circles of education message-delivery, including working with development organisations such as the African Development Bank. We believe our role is to educate around these points at a core level. Working with financiers is therefore crucial to ensure we have local backing at source.

Q: Santam has earned a reputation for insurance in SA. What is your Africa strategy, growth and focus?
Santam has been active outside of SA for longer than any other local general insurance brand. Guided by Sanlam, our majority shareholder, we follow a specific strategy in association with the Sanlam Emerging Markets business unit, which is to acquire shareholdings in local insurance markets in Africa. This is beneficial in two ways: the local partner has the knowledge and understanding of the on-the-ground risk, and we have the expertise and insurance capacity to provide the technical underwriting.

Similarly, when we partner with brokers, we follow the same strategy, including those within the global community. We are currently operating at 11% but would like to grow that share of premiums to more than 15% within the next two to three years – and Africa will be the lion’s share of that growth.

At the core of Santam is our mission statement, ‘insurance good and proper’, which works on a number of levels. While it is our philosophy to be the leading emerging-market general insurer in Africa and selected Asian markets, we also ensure that we provide adequate and relevant cover to all policyholders. This is especially true for the specialist environment because it is crucial to the development of any economy. We see our business as playing a very important role in the assistance of project development and have been positioning Santam specialist business as the quality insurance partner across the continent.

Q: Which industries underline Santam’s growth strategy and What is your current penetration?
We currently operate in Namibia, Botswana, Zambia, Malawi, Rwanda, Tanzania, Uganda, Nigeria, Ghana, SA, the DRC and Mozambique. Essentially we concentrate on engineering, liability, marine, aviation and corporate property. However, this does not limit us to involvement in the numerous mega infrastructure projects across all markets.

For example, in SA we’re heavily represented in renewable energy projects, similarly in Zambia (general electricity generation and mining). In the DRC we are invested in mining; in Mozambique and Ghana it’s oil and gas. In Zambia and the Congo we are partnered in large bridge and road projects. Across all other nations, it’s general infrastructure such as dams, rail, hotels and office properties. Outside of Africa we are active in India and Malaysia.

‘We look to build relationships that allow us to access local expertise’

Q: What are the risks linked to African infrastructure projects, and what associated services does your business unit provide?
A: Understand that the value of each project we underwrite varies, anything from R100 million upwards, even as high as R10 billion. There are some industries that are more risky than others.

Rail is riskier than road, similarly opencast mining is less risky than underground. We don’t, however, quite see it wholly that way. For example, engineering is a risk whether it is an office building or a mine – it’s the elements of the risk that are different. In a broad sense, from an engineering perspective we may be insuring machinery that is used on a project and its transportation. Such equipment is usually imported and, given the state of Africa’s road and rail infrastructure, this presents a number of risks.

Over and above this we also provide a project all-risks cover, right down to the raw materials being used. People are not forgotten. The nature of working with heavy equipment or underground can sometimes result in injury and, given that some projects are in remote areas, the liability risk has to include the injury, rescue and possible medical evacuation. Furthermore, we also cover travel risks for employees.

Companies in SA, having been awarded a high-value African project, generally send their most qualified, valuable staff to oversee the contract. Should something happen to critical staff, they too will need to be evacuated, usually back to SA.

‘We follow the same strategy, including those within the global community’

Q: You recently introduced a product for the African market, Seamless insurance. How does it work?
A: Typically, a broad range of risks on a project are covered by a number of different insurers. Insurer A would cover engineering risk, while insurer B handles project liability and so on through the asset range. Complicating this is that each project has a timeline of phases, so defining when one period starts and the other stops can be a challenge, such as moving from construction to maintenance and into the operations period.

If there are three insurers working on the same project with differing criteria, gaps in cover can manifest at the claims stage. When this happens brokers, insurers and clients engage in legal disputes and the project sits idle. Brokers have also found it difficult to deal with a number of different insurers with varying cover protocols.

We’ve responded to this problem with the introduction last year of the Seamless insurance product. It provides a single policy for a project covering the typical six or seven insurance risks. In other words, from start to finish, one insurer equals seamless cover.

Q: In Africa, What payout margins are you currently experiencing?
We have been fortunate that projects we insure have generally been successful. To give you an idea, on a gross loss ratio basis we are at 60%. So for every $100 of premiums we receive, we are paying $60.

Frequency is not the issue; it’s the value that counts. You could, for example, pay out excessively for one project in a group of six, while the others run fluidly. We haven’t seen many incidents at all but that is because we exercise extreme care when evaluating projects.

It’s usually quite easy to see the inevitability of certain risks and we also don’t go where we have no experience. For instance, we are not comfortable with offshore oil and gas projects –we don’t have that capability as yet – but onshore oil and gas, definitely. We are also governed by international and UN territorial restrictions, which means we are unable to underwrite in certain countries.

Q: Regarding criteria, what are Santam’s in terms of reinsurance partnerships, and how competent are they really?
A: There are numerous but it depends on the project being insured. We assess the strength of the contracts and quality of the work. But remember that at the very base of this is that we understand how important infrastructure is to any economy. Mega projects usually have state interests, including community servicing, so we see our business as a catalyst that helps projects manifest, and people grow.

With that in mind, we look for knowledgeable risk advisors and brokers, who have a good reputation and like-minded interests. This synchronicity is most valuable when a project crosses borders, such as a transnational road. We may see it as one project underwriting all risks, and even if there is a single contractor, we may need to deal with individual and differing national protocols.

This is why we look to build relationships that allow us to access local expertise and thereby ensure complete compliance.

I believe there is a strong body of reinsurers and brokers in Africa. Not only do they have an intimate knowledge of local conditions, but they understand the local risks. As a financier or project owner, you want to know you are adequately covered so that when something goes wrong, you are assured of your insurance partner’s ability to pay.

By Kerry Dimmer
Image: Hanlie Huisamen