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Short-term Insurance Strategic Risk Forum

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


• 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


THE ROLE OF INSURANCE IN THE ECONOMY

Presenter

Presentation Notes


Driven by the growing interconnectedness between the physical, economic and social

environments in which we live


Many people still do not have access to the collective ‘safety net’ and are therefore exposed to the increasing level of risk

Source: WEF Global Risk report 2012

AN INCREASING LEVEL OF SYSTEMIC RISK KEY CHALLENGE


S

E


TOP 10 STRATEGIC ECONOMIC SOCIAL GOVERNANCE RISKS

THERE ARE STRONG LINKS TO THE RISKS IDENTIFIED BY THE NATIONAL PLANNING COMMISSION

G E

S S

S

G

G

G How we manage our impact on the environment

Legislation & regulatory capacity

Lack of investment & maintenance of infrastructure

Dual economy

Lack of transformation

No real market growth

Human capital & skills

Increased crime and corruption

Information management

Image & reputation

SA insurance industry



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


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


COLLABORATIVE KNOWLEDGE SHARING AND PLANNING

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

1, 2nd Sept, 2011

17th Nov. 2011

Investing for Adaptation and mitigation

7th March 2012


THE STRATEGIC RISK FORUM STI Risk Drivers

Dashboard Changing Landscape

SAIA: Position Paper Industry solution SAIA: Trading Brief Other

Enabling / dis-enabling frameworks/policies Global and local partners Expertise shift – Human

Capital Development

Value Chain Readiness Funding Delivery / Implementation methodology

Governance, Controls, Technology Support , Information Management, Client Research Methodology, Central Analytics

Steerco Strategic Risk Forum Strategic Risk Forum

Environmental Social Governance Motor Reinsurance

2 year industry wide ESG Risk review

2 year rolling Global and local Stakeholder Analysis


THE FOCUS AREAS


Active engagement with the representatives in the value chain

FIA, SAIA, SAUMA, IISA, National Treasury, FSB, Scientists,

academics, government, NGO’s


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


CROP INSURANCE IN SOUTH AFRICA – LOW CURRENT MARKET PENETRATION LEVELS

Country MPCI [m€] Hail [m€] Total [m€] Market Penetration [%]

USA 5.401 486 5.887 80% Canada 1.038 193 1.231 60% China 1.019 0 1.019 25 % Spain 430 0 430 55% (incl. Livestock) France 160 170 330 32% MPCI / 55% Hail Italy 165 115 280 19% Hail / 1% MPCI Russia 217 0 217 10% India 182 0 182 20% Brazil 142 39 182 12% Germany 5 159 164 61% (crop hail only) Argentina 3 116 119 45% Mexico 114 0 114 8% Australia 0 104 104 80% South Africa 21 72 93 33% Austria 20 68 88 79% Republic of Korea 56 0 56 72% Turkey 43 3 46 5%

Total 9.016 1.525 10.541


SUSTAINABLE AGRI INSURANCE WHY: Higher penetration in the crop insurance market = multiple benefits

1. Integrated in agricultural policy and law

2. Public co-financing of premiums and cat losses

3. Transparent, uniform terms and products

4. Open to all farmers 5. Comprehensive coverage

benefiting individual farmers 6. Operated through specialised

crop insurers

Cimate Change Weather Risks Market Risks

Agrifinance and Agribusiness

Farmers

Public Sector

Specialised crop insurers

PPP

crop insurance

Proposed solution: Public-Private Partnership (PPP)



Business PPP initiation

May 2012

Collaborate Q1 2012

Understand Nov 2011

Establish principles with NDMC and SALGA for a cooperation

agreement

Develop MOU with CoGTA

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)


Enabled by collaborating effectively with the many stakeholders involved in managing risks

(Industry representatives, CSIR, UCT, government etc.)

Strategic Risk Forum Think Tank



COMMUNITY RISK INSURANCE

WHY: Demonstrate how simple insurance can help break some of the poverty traps many of our communities find themselves in

2012 2013

Identification of key partners

Robust public-private partnership

Mechanism with municipalities

Design concept

Community Risk Local human capital development

Shared risk through PPP Pilot

• 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


PRINCIPLES FOR SUSTAINABLE INSURANCE

2007 - 2010 2011 2012

Global consultation on sustainable insurance

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

Raised awareness of the contribution that the insurance industry is already making to

sustainability and get the industry engaged on this topic

UNEP FI insurance commission established

PSI to be launched at the Rio+20

summit in just over a week’s time

PSI launch


WHAT ARE THE PRINCIPLES FOR SUSTAINABLE INSURANCE?

Embed in our decision-making environmental, social, and governance

issues relevant to our insurance business

Work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues

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 PSI


CAN WE REALLY MAKE A DIFFERENCE?




LOCAL EXAMPLE: BUSINESS AGAINST 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

A CONDUIT FOR ENGAGEMENT BETWEEN GOVERNMENT & BUSINESS ON CRIME

Success is evident in the fight against

crime

Source: BAC


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



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

WHAT CAN YOU DO?

BE A SPOKESPERSON FOR THE TRUE VALUE OF INSURANCE



THANK YOU

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