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An Insurance Company Response To A Changing World

Author: Ray-Ann Sedres - Head Sustainability

( Article Type: Sustainable Development )

The macro business environment is beset by change. The extent to which companies survive and thrive is often linked directly to the extent to which both strategy and operations adapt to changes in both the macro environment and in the immediate business environment, too.

Take climate change, for example. It’s a reality. Weather pattern shifts are not going away. They have already shifted, and will shift more as ambient temperatures rise all over the world. Drier regions are getting wetter and rainfall patterns are shifting. Flooding (or what climatologists call the ‘enhanced hydrological cycle’) has become a tragic global phenomenon. Markets are changing profoundly as a result of this. Short-term insurance feels the impact keenly.

 Quinten Matthew, executive head of specialist business at Santam says the National Department of Social Development reported in February this year that late summer floods in South Africa had wrought damage in the region of R160 billion to infrastructure, property, businesses and vehicles. And there is no indication that this situation is set to improve in the medium- to long-term. In fact, he says, it may worsen bringing additional stresses to both consumers and businesses.

 Climate change has other very worrying consequences. It changes cycles of food production as crops fail under shifting weather patterns. And it changes the very fabric of markets as consumers either move home or change their spending habits around commodities and services to cope with changes in their lifestyle brought about by climate change. All businesses need to plan strategically around the reality of change. However, the short-term insurance sector is especially keenly impacted by change and relies on managing this change for its very survival. So working to understand change and to manage it becomes especially important… not only for the survival and sustainability of the sector, but also to continue delivering a service to millions of consumers who have invested in short-term insurance and who rely on the sector for help when things go awry.

 In the face of realities such as these, someone has to take the lead in strategy that will impact operations, policy and responses to change. Often entire sectors and economies, too, look to market leaders to take the initiative and bring competitors together to formulate a set of protocols that help bring an element of certainty in an increasingly uncertain world.

 Vanessa Otto-Menz, head of Strategy at Santam, says there are a number of things that all companies and industries can, and should, do internally to conscientise staff, stakeholders and partners around making constructive lifestyle choices and reducing the carbon cost of doing business. “We do this at Santam,” she says, “by saving energy, using water sparingly and monitoring our carbon output against productivity and efficiency. It requires a number of steps that are surprisingly simple to implement. And the benefit is that our team takes these lifestyle habits home with them, helping to extend environmentally responsible living beyond the workplace.”

However, it’s in national, regional and global adjustments for change that market and segment leaders such as Santam bring real, tangible results from their investment of time and energy. Santam has worked with the South African Insurance Association (SAIA) and the United Nations Environmental Programme Finance Initiative (UNEP FI) to bring every major short-term insurance player in the region together to discuss principles for sustainability in insurance. “Climate change is but one change that profoundly affects the sustainability and viability of the sector,” says Otto-Menz. “However, there are other changes, too, that the industry must contend with. They include changes in governance; in the regulatory environment; and in communities and society at large. It becomes increasingly important for the sector to both anticipate these changes, and put adaptation strategies in place to manage them.”

Underwriting risk; product and service development matters; claims management; environmental, social and governance risks; business strategies and operational issues were among the real and impactful matters that the meeting brought to the table and discussed robustly.

The South African meeting was the first in a series of seven global meetings of its kind to enable the insurance sector worldwide to devise a list of principles for sustainability to present to the Rio +20 conference. Other UPEP FI meetings for the insurance sector will take place or have already taken place in Brazil, Canada, the Middle East, New Zealand, Tokyo and Munich.

 Paul Clements-Hunt, Head of the UNEP Finance Initiative said at the time of the African gathering that short-term insurance was in the very business of predicting, and managing change. It held premier intellectual property about change and about how factors in the external environment (such as vehicle crime at one end of the spectrum, and profound climate change on the other) affected the financial well-being of people, communities and nations. It was difficult, if not impossible, Clements-Hunt said, to separate the one from the other as the industry relied as much on financially confident markets as people relied on the industry to cover their investments and assets, be those assets privately owned or owned by corporate or public entities.

The South African insurance sector already claims a number of risk management victories attained through collaboration. It was largely through its work, for example, with the South African Police Service; with other service providers (such as vehicle tracking companies); and with clients, that motor vehicle crime has halved in South Africa in the last nine years.

 “It is victories such as these,” Otto-Menz says, “that reflect a resounding win-win situation for all players – for the industry, for the public sector security forces and for vehicle owners. When we work together, we achieve astonishing results.”

 Managing change in the macro environment and economy is an imperative that’s exceptionally important to Santam CEO, Ian Kirk. He told journalists in Johannesburg recently that delivering on the Santam undertaking to provide good and proper insurance demanded involvement in numerous bodies, both private and public, beyond the boardroom and office.

 He is candid and unambiguous, for example, on the matter of vehicle insurance. “It should be made compulsory,” he says. “Santam is working with the industry association to promote national policy to ensure that every vehicle on the roads will one day be covered at least for third party liability. This is our responsibility as a short-term insurer. It’s our responsibility to all motorists, and especially to all insured motorists to help bring down the cost of vehicle insurance and to provide the comfort of financial predictability for everyone who has invested in buying a car or fleet of vehicles.”

He points out that The Road Accident Fund’s (RAF) present deficit is approximately R45billion and only half of RAF money effectively makes its way to beneficiaries. It is a system, he says, riddled with inefficiency and that just did not work for South Africa currently.

 Short-term insurers, Kirk says, have a responsibility to counsel on risk before losses are incurred. There is, for example, “far too much development” in some high risk areas and the scale and speed of development in such areas is very problematic in some cases.

Risk management, at its most general and macro level, is crucial not only for the sustainability of short-term insurance service providers, but also for their clients and for larger national and community sustainability.

“Fire; fire protection systems; safety and security; building regulations and building accessibility; climate change; adaptation to climate change and an increase in natural disasters form a suite of systemic risks that drive change in this industry and impact on our profitability; the value we return to shareholders and the quality of service we offer clients,” Kirk says.

 The industry at large is working with local government to grow capacity and delivery skills. South Africa has about 280 local authorities and a minority of these deliver acceptable services to their communities. “It’s a serious problem. The industry is working with local government to grow capacity to alleviate the negative effects of present capacity gaps.”

“Government is pairing good authorities with those that need help and putting senior people back into management and decision-making roles. Santam has seconded a senior executive to the industry association for the specific purpose of boosting capacity to manage systemic risk on this front.”

 Sustainability will only be assured through collective effort and investment. Investing energy beyond the boardroom and office is not only the responsibility of every corporate citizen. It’s an obligation that also pays dividends that business, and the economy, are entitled to.