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CASE STUDY: Alan Hutcheson CEO of Tracker gives an insight into how the
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2010 Challenges
and opportunities
The hot seat of this issue of En-
terprise Risk deals with a fascinating real
time case study entitled Rising from the
ashes. During the early hours of Saturday
17 January 2009, the Tracker head office in
Darrenwood, Johannesburg was gutted by
a fire that ripped through the building. Ac-
cording to Andre Ackerman, Trackers CFO,
the disaster recovery plan (DRP) was ex-
ecuted with military precision, enabling the
company to carry on with their business of
recovering vehicles. They took their first call
just five hours after the disaster. The entire
administrative staff was fully operational at
an off-site location by Monday morning.
The case study looks at the vital role that
each of the parties played in the implemen-
tation of the plan. The client was Tracker,
the disaster recovery site and service pro-
vider was IBM, the insurance broker was
Alexander Forbes Risk Management Serv-
ices, the insurer was Mutual & Federal and
the loss adjuster was Cunningham Lindsey
South Africa. The damage was estimated at
ENTERPRISE RISK DEALS WITH A
FASCINATING REAL TIME CASE STUDY
ENTITLED RISING FROM THE ASHES
some R40 million, but the DRP ensured that
not even a fire could prevent Tracker cus-
tomers and staff from taking back tomor-
row. A story well worth reading.
Enterprise Risk starts the year 2010 with
two industry-insight articles that give the
views and opinions of the leaders in the
short- and long-term sectors. Each focuses
on the lessons learned from 2009, and the
challenges and opportunities that lie ahead
for the upcoming year. While 2009 was most
certainly a difficult time for the industry,
there are undoubtedly many opportunities
for those willing to take the initiative. The
ENTERPRISE RISK Feb 10
one word that just about every leader men-
tioned as being a key priority is customer.
As a result, the levels of customer service
will rise even further.
In the last quarter of 2009, I took over the
editorship of Enterprise Risk when Sandra
Jordaan left. This was intended to be for
the period while a replacement was being
found. I am pleased to let you know that
we have now appointed an editor for En-
terprise Risk. Bronwyn Barnard, who cur-
rently edits Emergency Services SA and
Occupational Risk for 3S Media, will be
taking over from me with effect from the
next issue, with Monique Terrazas continu-
ing as assistant editor. I wish the team all
the best for taking this growing magazine
to even greater heights in this remarkable
year of 2010. I would also like to thank the
industry for their support.
Editor
3
EDITORS NOTE
ENTERPRISE
PUBLISHER Elizabeth Shorten
EDITOR Debbie Besseling
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CREATIVE DIRECTOR Frdrick Danton
CONTRIBUTORS Johann Maree, Keith Marshall, Anton
Engelbrecht, Taryn Marcus, Vanessa Payne
CHIEF SUB-EDITOR Milton Webber
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PRODUCTION MANAGER Felicity Moon
PRODUCTION ASSISTANT Constance de Sousa
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 HOT SEAT ENTERPRISE RISK Feb 10

TRACKER FIRE A CASE STUDY

Rising from the ashes

The chain of events following the fire that raged at Trackers building
early last year proved sobering and provided fascinating insight into
the dynamics of executing such a plan.

In the early hours of a into one of the proudest moments in On the following pages, we look at
Saturday morning last year, the Track- Trackers history. how the disaster recovery (DR) plan
er building was engulfed in flames, THE ROLE PLAYERS was implemented by considering the
causing an estimated R40 million in roles of the various players, what
The client Tracker
damages to the first floor of the build- they did right and the lessons that
ing. Fortunately, no one was injured The DR site and IBM can be learnt from this exceptional
service provider
and a comprehensive disaster recov- experience.
ery plan was in place. A combination The insurance broker Alexander Forbes risk The exceptional teamwork and pro-
management services
of Trackers disaster recovery plan, fessionalism of all the relevant role
The insurer Mutual & Federal
and its partnerships with the relevant players have been identified by all in-
role players, ensured that what could The loss adjuster Cunningham Lindsey volved as one of the key success fac-
South Africa
have been a business disaster turned tors in implementing the DR plan.

Disaster recovery in action

The implementation of Trackers DR plan was impressive, turning a
potential business crisis into a proud moment for the company.

Following a devastating fire at

their building in the early hours of a Sat-
urday morning early last year, Trackers im-
plementation of a well-planned and thor-
oughly tested disaster recovery (DR) plan
was nothing short of impressive: critical
services were recovered within three hours
and the execution of the total recovery plan
was completed within six days.
Of course, behind the scenes lay months
of preparation, testing and capital expendi-
ture spend to ensure not even a fire could
prevent Tracker customers and staff from
taking back tomorrow.

THE DISASTER RECOVERY PLAN

Business continuity is the number-one risk
on Trackers risk register, says Alan Hutch-
eson, CEO of Tracker. The first business
continuity plan was devised by an external
consultant as far back as 2004, and this plan
received a major overhaul in 2007. At the
time, a new DR contract was entered into
with IBM and the DR location was moved.
Following this overhaul, we maintained
the discipline of continuously updating the
business continuity plan.
PLANNING
Hutcheson notes that several factors con-
tribute to successful planning of DR. You
have to know your business, and never
Aftermath of the fire that ravaged the
Tracker building in 2009
assume that a disaster will not happen. Sce-
nario planning is crucial. But perhaps what
is most important is that business continu-
ity is taken seriously. The company must be
willing to invest time and money to facilitate

4

KEY ELEMENTS OF SUCCESSFUL DR
Hutcheson identifies the following key
elements in a successful DR:
Planning
business continuity plan
documenting the plan
choosing the right DR location and
supplier
Implementation
Testing
Execution
thorough planning and a DR plan owner
within top management must be tasked to
ensure that senior people are putting in the
time and effort required. Critical processes
and IT systems must be identified, and the
technology layout of the business must be
documented in such a way that non-IT peo-
ple can also understand it. The plan should
always cater for more, rather than less. It
must also be remembered that small things
do matter, for example in this case, recover-
ing our staffs personal belongings as soon
as possible.
Documenting the plan in full is another
key element identified Hutcheson. If your
full business continuity plan is not docu-
mented, you better avoid the disaster. In
this specific instance, because there were
no casualties of key staff, we did not have
to implement the full plan. We had experi-
enced executives who had prepared the DR
plans to execute them.
Choosing the right DR location and sup-
plier is part of the planning process. Crucial
factors to consider include the proximity of
the DR site to the main business location
in terms of the risk versus the cost for both
natural and unnatural disasters, difference
in power and communication grids, as well
as operational practicalities such as staff
CRITICAL FACTORS FOR A
SUCCESSFUL DR PLAN
A strong and capable DR team to take control
of the situation.
Senior staff should be allowed to make
decisions pertaining to their areas.
Main focuses:
critical operations up and running ASAP
vigorously defend the brand
communicate with customers/partners
be sensitive and supportive to staff
thorough understanding of IT and
Ops systems.
Strong vendor relationships.
Loyal and committed staff acting
as ambassadors.
Dont underestimate the softer issues.
Remain positive and maintain a sense
of humour.
Provide continuous food and refreshments to
the DR team and those helping out.
ENTERPRISE RISK Feb 10
HOT SEAT
transport. The cost of a DR infrastructure, as The first step was to issue a holding state-
well as additional costs such as insurance, ment, conveying the following key mes-
must also be considered. The assistance of sages:
a service provider with the right know-how Only the top floor of one of Trackers ad-
and facilities are invaluable to ensure the min buildings was affected.
right decisions are made, and for this rea- A comprehensive Disaster Recovery Plan
son Tracker partnered with IBM. is in place.
Tracker was still able to track and recover
IMPLEMENTATION AND TESTING vehicles.
You cant have a plan on paper only, There was no suspicion of a crime syndi-
says Hutcheson. Long before we needed cate attack.
our business continuity plan, we had im- Nobody was hurt.
plemented crucial aspects thereof, for ex-
ample, signing the DR site contract, pre-
paring the DR site and putting the right
communication infrastructure in place, in-
cluding updating staff contact details on a
monthly basis.
Successful testing was done in critical
IF YOUR FULL BUSINESS CONTINUITY PLAN IS NOT
DOCUMENTED, YOU BETTER AVOID THE DISASTER
areas. If possible, do a full test. Do not as- Effectively, it was business as usual.
sume that aspects of the DR plan do not Once the company had established a firm
require testing. Develop testing plans and handle on the crisis, a proactive media re-
record the results. Implement changes from lease highlighting all the positive aspects
what you learn in the testing. of the fire was disseminated. Constant con-
tact was maintained with key media to en-
EXECUTION sure that the facts accurately reported.
Execution requires military precision, says A general script was prepared for custom-
Hutcheson. The DR director must take ers and other stakeholders, and the control
charge, maintain discipline and not allow room staff were briefed to handle queries.
panic. Crucial to the execution is the right Key stakeholders and board members were
person for the job, concise decision-making notified and a statement was posted on the
and a skilled secretary who can document Tracker website. An emergency Tim from
all meetings and immediately distribute the Tracker recording session was scheduled.
minutes with detailed action plans. Senior Online social media and blog sites were
staff need to be involved but only members monitored and addressed. An advertorial
of the crisis management team should be
present at the meetings. It is also crucial as
top management trusts the appointed team,
and while holding people accountable, al-
lows reasonable freedom with regard to
decision-making.
In terms of technology, the relationships
with vendors, customer-partners, data and
telecommunication partners are critical. The
perceived rats and mice systems are im-
portant and companies should also consider
alternate technologies to make a change
over easier.
PROTECTING THE BRAND
A comprehensive communication plan tar-
geting the media, customers and stakehold-
ers, as well as staff members, was immedi-
ately implemented to protect the brand.
Alan Hutcheson, CEO, Tracker
5
 HOT SEAT ENTERPRISE RISK Feb 10

was placed in several key newspapers within
a day to put stakeholders minds at ease.
To avoid rumours and panic, positive
e-mails and SMSs were sent to all staff
members within hours of the blaze, followed
by details concerning their return to work.
Senior managers were briefed by trauma
counsellors to deal with their staff. To keep
inquisitive staff away from the scene of the
fire, a variety of photographs of the burnt
building were posted on the intranet site.
On the Monday morning, staff were greeted
by a welcoming committee to an extensively
branded DR site. Coloured Tracker shirts im-
proved coordination and stationery packs
were handed out. Hot snacks and drinks
were served and music played to lift morale.
All teams were fully briefed by their manag-
ers, before entering the state-of-the-art DR
site and logging onto all the normal Tracker
systems. A voice, fax and e-mail script was
prepared for all staff to help field queries on
the blaze.
TRIUMPH FOR TRACKER
R40 million of damages to the Tracker
building, a loss that in most other instanc-
es would have crippled a business, turned
into a triumph for Tracker. Perhaps more
importantly, the brand suffered no dam-
age because of a superbly executed
communications strategy.
Tracker staff, instead of being flustered
and disorganised, experienced some of their
proudest moments as they witnessed the
professionalism with which the recovery
was executed, a fact confirmed by the many
proud and congratulatory messages on the
Tracker website.

IBM The DR site and service provider

Business continuity and resiliency
A crucial element of a DR plan is ensuring business continuity and
resiliency. This was highlighted in this case study.

Following the fire at their THE RIGHT BUSINESS RESILIENCY STRATEGY

building during the early hours of a Sat-
urday morning, the Tracker team ran their
operations from the IBM BCRS site for
60 days, requiring in excess of 500 seats.
The Tracker operations were relocated
within hours of the fire and as a result of
the exceptional planning and profession-
alism of all the parties involved, it was
business as usual even before news of the
fire broke.
Cynthia Crose, vice-president, integrated
technology services at IBM sub-Saharan
Africa, explains just how quickly the re-
covery plan was implemented. The IBM
BCRS team was summoned to the recovery
Business resiliency can provide near-term cost efficiencies as well as strong, long-term ROI.
Mitigate risk Avoid the costs of downtime, brand damage and market share lost to competitors,
and reduce the financial impact from business disruptions.
Protect brand and revenue Properly assessing the threats to your IT infrastructure, their potential
business impact and your tolerance for risk can help you plan a realistic strategy.
Protect capital Analysing cost trade-offs can help you avoid unnecessary investment.
Reduce costs Resiliency solutions can help protect you from failed restores and lost data.
Improve service You can align resilient infrastructure to the needs of your business to maintain
service-level agreements based on your tolerance for risk.
facility even before the fire fighters had left factors implemented by IBM were again
the scene, and by 10am the technical team highlighted as crucial to a successful busi-
had started rolling out the call centre, and ness continuity plan, adds Crose. Firstly,
the emergency control room was relocated the business continuity processes need to
to the IBM BCRS site. By 11am, car track- be flexible, while adhering to IBM govern-
ing was up and running again, and by 2pm, ance guidelines. Secondly, test, test and
the call centre seats for Trackers staff were test to ensure the team not only knows,
ready and office seats were being rolled out but also owns the clients disaster recov-
and delivered. By 5am on Monday morn- ery plan. Thirdly, the value of having in-
ing, an IBM team, along with Trackers cri- frastructure 100% ready at all times was
sis management team, were on site ready to also underscored again. And lastly, we
welcome Trackers staff and assist them in were reminded never to underestimate the
getting them settled in. volumes of call records, people, etc., which
Crose notes that there were several suc- requires careful logistical planning in terms
cess factors that contributed to the success- of often-overlooked issues such as park-
ful implementation of the business conti- ing, extra housekeeping requirements and
nuity plan. These are graphically presented additional security.
in graph 1. Crose also says that testing and exercis-
ing is vitally important to ensure effective
LESSONS LEARNED and efficient business continuity. Apart
In this case, a number of critical success from making sure the business continuity
plan works, testing and exercising is an
Cynthia Crose, vice-president, important way to train the relevant people
Integrated Technology Services, IBM, and to maintain a high state of readiness.
sub-Saharan Africa It also allows a company to capture any

6
 ENTERPRISE RISK Feb 10
HOT SEAT
IBM's successful business continuity
is illustrated in DIAGRAM 1

changes and to audit the plan, while creat-

ing awareness among staff at all levels, as
well as among stakeholders.

BUSINESS RESILIENCY DOES MATTER

Many different threats and opportunities
can arise that can threaten the stability of
a companys business and IT operations,
from the obvious weather-related risks,
such as hurricanes or floods, to the unex-
pected, successful marketing or public rela-
tions campaigns that result in an overload
of a system and a subsequent crash, ex-
plains Crose. A business resiliency strat-
egy must centre on understanding all the
potential risks, which can be data driven,
business driven or event driven, across the
enterprise.

ALEXANDER FORBES The insurance broker

The role of the broker
The broker plays a pivotal role in the relationship between the insured,
the insurer and external specialists such as the loss adjustor.

The recent Tracker fire claim
clearly demonstrated how the right broker
can optimise the synergies between the vari-
ous role players in the insurance industry.
When the Tracker team arrived at their
premises on the morning of Saturday 17
January 2009 to discover an estimated
R40 million of fire damage, their first port
of call was their broker, Alexander Forbes
Risk Services.
Alexander Forbes risk services immedi-
ately appointed a loss adjuster, Cunning-
ham Lindsey South Africa, to visit Trackers
premises, assess the damage, investigate the
root cause and adjust the claim once it had
been formulated by the client and presented
by the broker to the insurer. On the Monday
following the fire, Mutual & Federal ratified
the loss adjusters appointment and within
48 hours after the devastating fire, the loss
adjustors preliminary report was received.
Since the loss was correctly covered by
the insurance policy arranged by Alexan-
der Forbes, Mutual & Federal could swiftly
process the claim and make interim pay-
ments to assist Tracker with the immediate
costs faced.
Arranging the right cover with the right then translate these into a comprehensive
insurer, acting swiftly within the insurers risk management strategy to ensure that
mandate and choosing the right loss ad- all exposures to the clients business are
juster were crucial to the prompt settling of properly addressed.
the claim. However, perhaps most important A broker must take a holistic view of the
was the brokers role in arranging adequate clients business, and provide the expertise
insurance and managing the clients ex-
pectations and experience throughout the
claim process.
The broker is the link between the in-
sured, the insurer and external specialists
such as the loss adjuster, managing expec-
tations and optimising synergies among
the various role players, says Jaco Smit,
business unit manager at Alexander Forbes
risk services.
THE BROKER-CLIENT RELATIONSHIP
In the relationship between the broker and
the client, it is crucial that the broker has a
thorough understanding of the clients busi-
ness. In essence, the broker must understand
the clients needs by having an in-depth
understanding of his clients business and
Jaco Smit, business unit manager,
Alexander Forbes risk services

7
 HOT SEAT ENTERPRISE RISK Feb 10

DIAGRAM 2 Interlinked relationships
and insight to ensure an enterprise-wide ap-
proach to risk management is implemented,
says Smit.
THE BROKER-INSURER RELATIONSHIP
While the clients needs must always come
first, the value of long-term relation-
ships between brokers and insurers cannot
be underestimated.
It is crucial that both the broker and in-
surer clearly understand and operate within
the agreed mandate to ensure prompt settle-
ment of claims,adds Smit.
THE BROKER-LOSS ADJUSTER
RELATIONSHIP
One of the most important characteristics of
a good broker is the ability to harness both
internal and external expertise and experi-
ence. Usually, the insurer appoints an ad-
juster of its choice. However, an experienced
broker will liaise with the insurer prior to
the appointment of a loss adjuster to agree
on the latters availability, flexibility, skill
and integrity to ensure the client receives a
fair settlement, says Smit.
Warren Buffet said, It is only when the
tide goes out that you learn who has been
swimming naked."
"When facing a catastrophe of this
magnitude without the assistance of an
experienced broker, this bit of Buffet wis-
dom takes on a whole new meaning, com-
ments Smit.

MUTUAL & FEDERAL The insurer

The role of the insurer
The fire that occurred at Trackers head office demonstrated the value
and peace of mind the right insurer can provide.

The raging fire at Trackers

head office in Randburg caused an esti-
mated R40 million of damage. The chain
of events following the fire proved that a
trusting relationship between policyhold-
ers, short-term insurers and brokers can
result in swift action to solve a potentially
crippling problem, explains Ken Law-
rence, general manager: claims technical
for Mutual & Federal.

CHAIN OF EVENTS
The first link in the chain was the swift
reporting of the loss to Trackers broker,
the Alexander Forbes group. They immedi-
ately informed Mutual & Federal, and the
insurer responded rapidly by assembling a
senior team to deal with the loss.
Alexander Forbes also immediately ap-
pointed a loss adjuster. The loss adjusters
preliminary report was received within 48
hours, allowing the claim to be processed
without delay. given the substantial loss and potential DIAGRAM 3 Illustrating Mutual &
An internal special investigations unit lengthy period of business interruption, a Federal's partnership approach
was appointed to establish the cause of number of interim payments were made to
the fire, with the assistance of forensic in- Tracker to assist in reinstating the busi- within hours. This can be attributed to a
vestigators. ness, says Lawrence. number of key factors:
A loss management plan was presented Formidable teamwork between all par-
to Tracker, providing clarity regarding the KEY SUCCESS FACTORS ties involved.
claims process. To date, Trackers claims The claim was handled within the short- Mutual & Federals senior manage-
experience had been exceptional, and est period and the business was reinstated ment team dealing with the claim had

8

extensive underwriting and claims man-
agement experience, as well as the au-
thority to make immediate decisions.
Alexander Forbes clearly understood
their mandate, duties and options
from the outset and coordinated the
entire process, while managing the
clients experience.
Mutual & Federal had a strong and posi-
tive relationship with the loss adjuster,
whose timely report was a crucial aspect
in the swift handling of the claim.
Tracker had a comprehensive disaster re-
covery plan, which was well executed.
LESSONS LEARNT
A number of pertinent lessons can be
learned from the Tracker claims process:
A partnership approach to good claims
management is required.
CUNNINGHAM LINDSEY SA The loss adjuster
Negotiating claim settlements
Although being paid by the insurer, the loss adjuster acts as a mediator
between the insured and the insurer to achieve a fair settlement.
The loss adjusters role
is vital in the claims process and through
possible pre-loss nomination or knowledge,
a vital trust relationship can be established
with the insureds relevant representatives.
According to Ken Maclean, branch man-
ager, Cunningham Lindsey South Africa,
As students of insurance, we read about
the principles of utmost good faith and
the responsibility of the insured to dis-
close material facts. However, the need for
trust goes way beyond this. As far as the
insured is concerned, it is a two-way street
with the insured needing to trust and have
faith in all those involved in the insurance
arrangements both from a policy and claims
point of view.
The test of any insurance is the claims
service. Unlike many things that are bought,
it is invisible at the time of purchase and
therefore effectively taken on trust from
both parties to the contracts point of view.
The insured needs the comfort of trusting
the service and understanding what will
occur when and how, in the event of a loss,
to protect assets and trading as well as,
most importantly, reputation and brand.
The broker can play a vital role in the
ENTERPRISE RISK Feb 10
HOT SEAT
Transparency and good communications
are essential.
Insurance must be recognised as the
final mitigation for the unexpected and
as the clients backstop.
Giving the broker a clear mandate to act
in the event of loss, such as the appoint-
ment of a loss adjustor from an approved
panel, accelerates the claims process.
For Mutual & Federal, this experience has
highlighted the importance of fostering
excellent business relationships with our
brokers and policyholders. When a short-
term insurer, broker and policyholder act
as a unified force, a large-scale disaster
can be resolved within hours and the
Tracker case study is proof of this, says
Lawrence.
Ken Lawrence, general manager, claims
technical: Mutual & Federal
appointment of a loss adjuster, ensuring Trust is mutual and in the context of
that the appropriate firm with the requisite claims is best demonstrated by early re-
technical expertise and capacity is selected. lease of funds through interim payments at
A trust relationship must therefore also ex- a time where cash flow is most likely to
ist between the broker and adjuster. be stretched.
The first day on any major incident is With the nature and vast extent of the
crucial as critical decisions will need to be damage, we have no reservations in plac-
taken to ensure trading continuity. While ing on record that had it not been for the
business continuity plans such as Trackers Trackers disaster recovery plan, the loss
disaster recovery plan may be in place, would have resulted in far serious implica-
the adjuster is influential in the decision- tions from both a cost and business conti-
making process, and the insured must have nuity point of view.
comfort that the adjusters commercial acu-
men will have been gained by involvement
in a range of industries and loss scenarios.
Reputational risk runs far beyond any
coverage provided by the policy and this
is where the need for trust is the greatest.
Communication remains the key to reten-
tion of trust, an awareness of issues fac-
ing a business is vital and the broker again
has an important role to play in convey-
ing information not only to the insurer but
also to the adjuster in a claim scenario,"
says MacLean.
Ken Maclean, branch manager,
Cunningham Lindsey SA
9
 GENERAL
COVERINSURANCE
STORYY
BROKERS CORNER
Preparing to document the
Before documenting a RM plan, advisers should first place the risks
they face in context, by understanding the objectives of their business
within the strategic and organisational environment.
The context of a problem consists
of the strategic context, the organisational
context and the risk management context.
A working knowledge of the FAIS Act and a
documented business plan will assist in map-
ping the context for the development of a risk
management plan.
STRATEGIC CONTEXT
The strategic context includes the na-
ture of the environment in which a fi-
nancial advisory business operates. Some
questions advisers should look at are:
What relationships does the advisory busi-
ness have that are necessary for the busi-
ness to operate?
What laws, regulations, rules or standards
apply to the advisory business?
ORGANISATIONAL CONTEXT
The organisational context includes the way
the advisory business is structured and how
it operates, including the extent of operative
knowledge advisers have of their relevant ar-
eas of responsibilities. This context may be
technical or non-technical. It includes the ad-
visory businesses' aims, activities, structure,
membership and method of operation. These
are some questions to ask:
What are the aims and objectives of the ad-
visory business?
ENTERPRISE RISK Feb 10
What is the core activity? Who is involved
both internally and externally?
What equipment does the business have
and/or use?
RISK MANAGEMENT CONTEXT
The risk management context includes the
nature of operational, technical and regulato-
ry frameworks and what is being done. Some
questions to ask include:
What is the advisory business currently do-
ing in terms of risk management, either for-
mally or informally?
Is the advisory business insured?
Is the advisory business a sole practitioner
or does it have a legal persona?
The goals, objectives, values, policies and
strategies of the business and how advisers
contribute to these are also important consid-
erations that help define the criteria by which
decisions are made about the acceptability of
risks, the form and basis of controls, and the
management options available.
Within this overall risk management con-
text, it is also important to identify the strate-
gic and organisational functions, such as:
business management
economic circumstances
corporate governance
commercial and legal
financial management
human resources
technology and systems
unnatural or natural events.
Once these functions have been identified,
risk management policies and strategies can
be considered.
RISK MANAGEMENT POLICY AND STRATEGY
To achieve an effective risk management sys-
tem, it is essential for advisers to develop a
clear policy statement, which should:
outline the scope and process
JOHANN MAREE
Maree is the co-founder of both the Institute of Practice Management and Myriad
Planning Solutions, which develops rules-based integrated business solutions for
financial advisers.
10
RM plan
BY JOHANN MAREE
reaffirm commitment to resources
clarify roles and responsibilities
define documentation and report-
ing requirements.
This policy sets the framework for the risk
management strategy and applies to all ar-
eas and entities within the business. Once
the context and policy framework is clearly
established, developing a risk management
plan becomes easier. The risk management
strategy should be integrated with other plan-
ning and management activities.
RISK MANAGEMENT RESPONSIBILITIES
All advisory business owners and staff are
responsible for:
developing and implementing the risk
management plan
reporting serious risk exposures and
all serious incidents to the advisory
business owner
reporting annually on the status of risk
management actions to the owner and the
compliance practitioner
assisting in identifying potential risk expo-
sures and for developing and implement-
ing risk mitigation plans for unacceptable
exposures, which may include:
preventing potentially damaging events
through minimisation strategies
providing decision makers with risk man-
agement information to assess acceptable
risks
where appropriate, transferring risk to
third parties through insurance and
contractual arrangements.
Other stakeholders may be invited to assist
to identify potential risks and suggest any
proposed mitigation.
Dont miss the next article in our Brokers
Corner series!
The next article will look at how to identify and
document the risks advisers face.
 GENERAL
COVERINSURANCE
STORYY
INDUSTRY INSIGHT
Succeeding in
The current insurance landscape is drastically different compared to the
market before the global financial crisis, enabling some insurers to pull
ahead from their competitors and leaving others behind.
The financial crisis has al-
ready proved to be a watershed for the insur-
ance industry in many parts of the world.
The expectations of customers, investors,
governments and regulators from the in-
surance industry are changing rapidly and
pervasively and as such, the environment
is expected to evolve at a rapid pace over
the next two to three years, ruling out any
return to the relative stability and certainty
that preceded the crisis.
This was revealed by the Pricewaterhouse-
Coopers (PwC) The Day After Tomorrow for
Insurance report, which gauged how the
global slump is reshaping the insurance in-
dustry and highlighted key developments
that are likely to affect particular segments
and geographical markets.
While the response related to the market
downturn has varied from country to coun-
try, there is an overall feeling of uncertainty
that defines the industry, says Victor Mu-
guto, Southern African insurance leader at
PwC.
Even companies that did not re-
quire bailouts have responded to
G REATER TRANSPARENCY AND COMPARABILITY OF FINANCIAL AND RISK
DISCLOSURE WILL BE CRITICAL IN GAINING ACCESS TO THE LIMITED SUPPLY
OF AVAILABLE CAPITAL VICTOR MUGUTO, SOUTHERN AFRICAN INSURANCE LEADER, PWC
ENTERPRISE RISK Feb 10
a drastically
government requests to cut costs and spend In addition, local insurers must also ad-
more effectively. dress the perceptions of the insurance indus-
It is clear that all insurers across the world try in the low-income market. The challenge
will be required to transform their business for the industry is perhaps greatest in those
practices to suit the changing sector. This market segments that have no awareness of
shake-up will challenge the competitive rel- insurance or see no benefit in it. Interven-
evance of some insurers. However, it also tions to educate, inform and reach potential
offers agile and farsighted firms a once-in- consumers are important and may present
a-generation opportunity to catapult them- viable opportunities for local insurers.
selves to the front of what will be a very
different racing order within many geo- IMPACT OF DISTRIBUTION CHANNELS
graphical markets and classes of business. The disillusionment created by the crisis in
many of the more developed markets could
CHANGING CUSTOMERS affect channel preferences. In Germany and
Customers faith in financial institutions has Switzerland, for example, there has been
waned, internationally. As capital disap- strong unease about the charges and plum-
peared from the markets, customers have be- meting returns from many annuities. This
come more cautious, preferring to hold on to is leading to a growing switch from tied to
their cash. Those who are prepared to invest independent advisory channels, as custom-
their money are starting to favour simpler ers seek more thorough and unbiased advice
and less risky products. about which products match their risk ap-
What customers demand from savings petite and demand profile. This echoes de-
and investment products and how they velopments in the US in the1990s, and in
want to buy them will take a new direc- the UK in 2000 and after. In some countries,
tion within many territories, with compa- Hong Kong, for example, buying insur-
nies that are slow to catch on, becoming ance through strong and trusted banks is
increasingly marginalised. becoming increasingly popular once again.
Clearly, customers will eventually start Companies will naturally need to keep their
spending, but will search for more effec- ears to the ground and adapt their chan-
tive risk protection. The key question is, nel strategies to what could be rapidly
on what terms will customers choose to re- changing preferences.
engage with insurers and how may product
and distribution strategies need to change INCREASING REGULATORY INTENSITY
to encourage them back into the market?
Under pressure from governments, supervi-
says Muguto. sion in financial services will be more intense
Whats more, consumer demand profiles
and regulations will be more subject to na-
are also changing in South Africa. Like their
tional priorities in their interpretation and
counterparts in the developed world, the lo-
application. Some countries are going the
cal insurance industry must react to these
extra mile in developing tough regulatory
changing customer needs. Customers are be-
regimes with a focus on governance and risk
coming more discerning and better able to
management. As a member of the Interna-
make informed choices. tional Association of Insurance Supervisors,
South Africa too
is expected to
follow its lead.
As such, we can
.
anticipate an
12

transformed insurance sector
increase in supervision, with increased focus
on solvency, governance, consumer protec-
tion and risk management.
INVESTORS DEMAND RISK MANAGEMENT
A common thread is the emphasis on strong
ERM. he pursuit of innovation and capital ef-
ficiency has given way to focus on stability
and risk management.
Analysts and investors require a more sys-
tematic approach to effective risk manage-
ment. Greater transparency and comparabil-
ity of financial and risk disclosure will be
critical in gaining access to the limited sup-
ply of available capital.
Market confidence also continues to be un-
dermined by the absence of a relevant and
globally consistent insurance accounting
standard and lingering concerns related to
consistency of embedded value methodolo-
gies and assumptions.
Definity/FW ENG/28.01
Successful administration, prompt & efficient claims management and world-class customer service
determines both the market success and member satisfaction of any given medical fund.
Since inception in 1978, Sechaba Medical Solutions
(SMS) has positioned itself as one of the best
medical fund administrators in terms of IT systems,
service and empowerment in South Africa today.
Its strong empowerment history gives SMS the
edge as it understands the healthcare needs across
South Africas racial and cultural diversity.
ENTERPRISE RISK Feb 10
GOVERNMENT INFLUENCE
Although those governments that have bailed
out insurers are eventually likely to divest
their direct holdings, their influence across
the sector will continue. Other governments
however may continue to offer substitutes to
insurance, such as trade and credit schemes
and being the insurer of last resort.
This could result in competitive distor-
tions and impede market development and
once in place could be difficult to with-
draw. On the other hand, governments
that have recapitalised parts of the insur-
ance sector may insist that taxpayers are
given a more favourable deal from the
insurance industry.
KEY DEVELOPMENTS AND THEIR STRATEGIC
IMPLICATIONS
Continued uncertainty involving de-
mand, inflation, stock market performance
Its IT and service strengths have ensured its
flexibility to adapt to the demanding legislative
healthcare requirements that have evolved with
time. This powerful combination ensures that
SMS is well placed as a key player in the current
healthcare environment.
GENERAL INSURANCE
and budget deficit scenarios will plague
the market.
The reshaped environment will present both
transformational opportunities and signifi-
cant threats for businesses that fail to antici-
pate and adapt to the changes ahead.
A number of short-term themes have also
been sparked by the financial crisis. Height-
ened risk concerns and the need to rebuild
balance sheets have forced many insurers to
follow more conservative investment paths.
Firms that have been leading the way in driv-
ing home effective risk management prior to
the crisis have already been implementing
this strategy.
Statistics show that the economic down-
turn has been tough on our local insurers.
The slowing economy has led to, among oth-
ers, rising claims. Local insurers should view
this time as a period of challenges and op-
portunities.
To find out more about SMS flawless administration
and dedication to service excellence contact
(011) 353-0048 or visit www.sechabamedical.co.za
An authorised financial services provider
 SHORT TERM
INDUSTRY INSIGHT
2010 challenges and opportunities
Enterprise Risk asked the short-term insurance industry leaders to share
their insights regarding the challenges and opportunities 2010 will bring.
Johnny Symmonds, MD,
Lombard Insurance
Single greatest challenge:
There are a number of significant
challenges facing the industry.
The first and probably the most
important is attracting and retaining
quality skills. Secondly, regulation
is becoming increasingly complex,
while regulatory authorities
are becoming more hands on.
In addition to industry-specific
regulation, there is an increasing
interrelationship between various
new acts, and future regulations
such as financial condition reporting
and the possible 'green' legislation
will add to the complexity. Global
warming, its impact on weather
patterns and the associated
increase in insurance losses, is
another great challenge facing the
industry. Lastly, the industry faces
constraints in terms of reinsurance
capacity, both in terms of capital
available at a catastrophe level and
in particular the capital available for
guarantee classes.
Greatest opportunities: The growth
in the middle class, traditionally a
major market for insurance products,
ENTERPRISE RISK Feb 10
is growing, creating opportunities for
the industry. In addition, we have a
large untapped, uninsured market,
which holds great opportunities for
those insurers who can find the
right solutions to product pricing
and market access. The recent
credit crunch has also created
opportunities, particularly in the
credit risk sector, by highlighting the
vital importance of managing
credit risk.
Barry Scott, chief executive,
SAIA
Single greatest challenge: The
biggest challenge for short-
term insurance generally, and
SAIA specifically, will be to
draft and implement a holistic
and comprehensive strategy to
address motor insurance. Such
a strategy will not only have to
address the risk, but also the cost
of motor insurance claims to keep
motor insurance affordable and
motor insurance as a business
class sustainable.
Greatest opportunities: The
market has yet to tap into the
low-income market although a
few of our members have started
exploring possibilities in this
market with low-key activities.
Companies which use the lessons
learnt from mistakes made in
14
the micro-insurance space, and
innovatively enter the untapped
market in the near future, will
reap unexpected benefits. The
SAIA financial literacy consumer
education initiatives planned for
implementation in 2010 should
enhance opportunities for short-
term insurance companies with
appropriate products.
Jurie Erwee, Alexander Forbes
risk and insurance services
Single greatest challenge:
Those who attract and retain the
best talent will reap the benefits
as new opportunities present
themselves. Advancing technology,
environmental risks and corporate
governance will dominate
boardroom discussions in 2010,
presenting opportunities for risk
advisors and the insurance market
as institutions and individuals
seek enterprise-wide solutions to
emerging risks.
Greatest opportunities: More
companies will be adopting a
'high-risk, high-reward' approach
in seeking profits from emerging
markets, including Africa. This
provides exciting opportunities for
South African-based risk advisors
and carriers with representation
and experience of doing business in
Africa. South African insurers have
been slow to expand into Africa but
expect this to change as the focus
on investment opportunities in
emerging markets and particularly
opportunities in the financial services
arena will increase in 2010.
Guy Scott, CEO, Aon Risk
Services
Single greatest challenge: Perhaps
the most difficult risk management
issue is ensuring that organisations
remain committed to established,
effective risk management
strategies. Risk control efforts
should not be ignored for the sake
of immediate expense cutting. A
comprehensive and successful
response to this global economic
downturn requires the consistent
application of excellence in all
facets of risk management.
Greatest opportunities: Those
organisations who have successfully
weathered the storm with
stringent expense management
and successful talent retention
strategies, coupled with continued
investment in innovation, will benefit
from the flight to quality in terms of
the consumer behavioural change.
Efforts should be focused on quality,
as there is a higher expectation of
value for money from consumers.
A constant investment in new ideas
and solutions is paramount in the
 IN-HOUSE
COUNSEL
Understanding YOUR role and strengthening your 15, 16, 17 &
18 March 2010
companys protection against legal liability The Wanderers Club,
Illovo, Johannesburg
Conference highlights and interactive sessions include:
T Discussing the Sections of the Companies Act that will be affected by new drafting
T Aligning legal policy with the business bottom-line
T Discussing the future of risk and corporate governance compliance as a function of the In-
House Counsel
T Highlighting the current corporate case law
T Mastering your contract negotiation and drafting skills
T Managing the use of your external advisor and controlling the cost to company
T Defining the In-House Counsel role in accountability to ethical business practice

Pre and Post Practical Conference

Workshops:
Practical techniques for incorporating the
Companies Bill into your policies and procedures
Facilitated by: Jacques Peters, Director, Jacques Peters
Consulting CC
Date: 15 March, 2010

Mastering your contract negotiation

and drafting skills
Facilitated by: Gavin Weiman, Attorney,
Weiman Consulting
Date: 18 March, 2010

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 SHORT TERM
creation of competitive advantage
same old, same old is just not most keenly watched development
enough anymore.
Paolo Cavalieri, chairperson,
Etana Insurance
Single greatest challenge: Our
biggest challenges as an industry are
finding creative and effective ways of
contending with economic pressure
for ourselves and our clients; finding
ways to progress meaningfully in
areas such as people and leadership
development; and attracting top
talent, so we will have strong and
skilled people to move forward.
Greatest opportunities: There has
never been a more critical time for
brokers to demonstrate their value
to clients in ensuring all avenues
of risk are adequately covered,
without paying for insurance they
dont need. The insurance industry
needs to be innovative in supporting
BBBEE goals and has opportunities
to use its personal connections with
millions of policyholders to make
meaningful contributions in the area
of consumer education. We also
all have opportunities to sensitise
government and consumers to risk
management.
Michael Blain, CEO, Centriq
Insurance
Single greatest challenge: The
new binder regulations and medical
ENTERPRISE RISK Feb 10
demarcation regulations will be the
could result in growth opportunities
in the first half of 2010. The second
half of 2010 will see South Africa
focusing on its many challenges,
especially how to capitalise on and
maintain the economic momentum
of the World Cup. The insurance
industry will continue focusing on
motor-loss ratios and the cost of
motor vehicle repairs to restore
profitability; risk management; risk
surveys and risk premium rates.
Another challenge is the ageing
public infrastructure and lack of
maintenance owing to the economic
environment and the consequent
impact on claims.
Greatest opportunities: Companies
that are flexible and entrepreneurial
with solid shareholders and the best
skills will survive the consolidation
among insurers and underwriting
agencies in the next 18 months.
Brand Pretorius, CEO,
Momentum Short-Term
Insurance
Single greatest challenge: The
challenge for insurers will be to
manage the expected increase in
costs, without transferring all of the
cost pressures to the consumer.
The successful insurers in 2010
will be those who are the most
accurate in determining the risk
profile for each individual client and
charging the appropriate premium.
This requires a greater emphasis
on risk management and improved
harnessing of technology for greater
operational efficiency.
Greatest opportunities: Indications
are that a turnaround in the economy
16
can be expected during 2010. This
and autobody repairs remain a cause
for the industry in general.
Keith Kennedy, MD, Mutual &
Federal
Single greatest challenge: Growth
in the short-term insurance industry
will be challenged by the state of
the economy. The weather is also a
wild-card factor for the short-term
insurance industry, becoming more
unpredictable over the years, and
claims relating to such events are
more frequent and larger.
Greatest opportunities: We should
see some buoyancy in the economy
in the first half of the year leading
up to the 2010 World Cup. Many
businesses will require various forms
of cover during this period and we
should see an increase in policies
written.
Pierre Geyer, head: broker
division, Hollard
Single greatest challenge: The
stressed economy will push clients
to seek more perceived cost-
effective or alternative insurance
solutions. The anticipated changes
in legislation, particularly related to
binder agreements, may negatively
affect client service and operating
costs for intermediaries. The
increasing supply-chain costs of
particularly motor-vehicle spare parts
for concern in terms of claims costs.
Greatest opportunities: The Soccer
World Cup 2010 will have a hugely
positive impact on the economy,
which will spill over to the insurance
industry. Brokers need to examine
the needs of all their clients with
this in mind. With the new FAIS
requirements, a number of non-
compliant brokers will exit the market,
ANOTHER CHALLENGE
IS THE AGEING PUBLIC
INFRASTRUCTURE
creating acquisition opportunities
for other brokers. With general
service levels deteriorating in certain
insurance channels, the broker will
also remain vital to their customers.
Ian Kirk, CE, Santam
Single greatest challenge: The
domestic economy is starting to show
early signs of recovery, but such
recovery will be slow a scenario
that requires focused attention
on the management of risk. The
impact of climate change must
feature prominently on the industry
agenda. 2010 will also see clients
making greater demands for quality,
innovation, service and appropriate
costs. Santam further expects to
see a continuation of mergers and
acquisitions in the intermediary space.
Greatest opportunities: As with
2009, 2010 will be challenging for
the industry. All players will need to
stay on top of their game, but these
challenges inevitably will create
opportunity. 2011 will likely be the
year of recovery for our industry.
 SHORT TERM ENTERPRISE RISK Feb 10
PRODUCT RECALL
Beware the CPA...
With the Consumer Protection Act coming into force shortly, companies
need to understand the impact it will have on their product recall
insurance. BY KEITH MARSHALL - CHARTIS
Companies are well advised to take
up recall cover or increase their existing cover be-
cause the Consumer Protection Bill has been promul-
gated into law. In more mature markets like the UK
which have similar laws in place, an increase in over-
all product recall of 125% between 2004 and 2007 has
been seen. With regard to non-food products, a mas-
sive 894% rise was recorded between 2004 and 2007,
explains Keith Marshall, regional manager, liabilities
group, Africa region of Chartis South Africa.
Certain sectors will be at higher risk because of
the implementation of the CPA than others, and the
TABLE 1 Risk rating
controls required will differ accordingly. These risk
and controls
SECTOR RISK RATING CONTROLS REQUIRED
Retail and High Supply chain management including supplier
distribution insurance
Contract certainty between suppliers and consumers
Complaints handling processes and procedures
Product recall plans, processes and procedures to be
set up by the insured with loss controls assistance
where applicable.
Manufacturing Medium to Supply chain management including supplier
high insurance
Contract certainty between suppliers and distributors
Increased quality control on product functionality,
safety, education in the form of manuals and labelling
Complaints handling processes and procedures
Product recall plans, processes and procedures
Services Medium Contract certainty between suppliers and consumers
Complaints-handling processes and procedures
ratings and controls are detailed in table 1.
Retailers will be more responsible for the products
TABLE 2 Liability
INSURED INSURER
Strict liability resulting in increased claims Increased limit as per exposure to risk of
and settlements. liability.
Increase costs in the form of: Increased information requirements:
quality control loss control
supply chain management processes, procedures, controls and
vetting of suppliers monitoring systems.
claim payments
counter claims against suppliers.
Insurance packaging: Review information provided and provide
warranty and inefficacy covers efficacy and/or financial loss cover on a
increased limits for financial loss. selected basis subject to specific terms and
conditions.
20
they sell following the implementation of the Con-
sumer Protection Act (CPA), as consumers will be in
a position to return unsatisfactory goods to the re-
tailer as opposed being restricted to seeking recourse
solely against the manufacturer, explains Marshall.
This means retailers can be held as accountable as
a manufacturer the middle man status has been re-
moved. Retailers should advisably seek to ensure that
their suppliers have recall plans in place along with
full-blown recall insurance. This is due to the fact that
consumers are now in a position to hold the retailer as
accountable as the manufacturer.
GET THE COVER NOW
Marshall says that an increase in recall cover pre-
miums is likely since there are more rights of re-
course for the consumer as is intended by the leg-
islation. This is likely to translate into more claims,
increased legal action, and therefore higher premiums
and/or deductibles.
In terms of the underwriting criteria, the retailer
and a manufacturer will now be rated equally as the
exposure to claims increases with the consumer hav-
ing access to greater routes of recourse. There is a
potential for retailers to carry even greater exposure
than a single manufacturer, since the retailers will sell
multiple products from a variety of manufacturers.
In a nutshell, buying cover now would be cheaper
for two reasons, notes Marshall. Firstly, if we con-
sider the trends evident in the more mature markets,
we know that a spike in claims is inevitable. Secondly,
forming a relationship with an insurer now enables
the insurer to have a better understanding of what
the insureds activities are and what the specific risks
are. This translates into more favourable terms, as the
insured is not gauged against industry standards. For
instance, when dealing with a high-hazard industry
such as the tyre industry, an insured in such an indus-
try that has had a quantifiable claims history (prefer-
ably a good claims record) in say over five years, will
be in a more favourable position.
ISSUES TO CONSIDER
There are a few factors that companies should be con-
sidering in light of the implementation of the CPA
renewing or taking out products recall insurance as
detailed in table 2.
Prepare your organisation for the new COVER STORY

Examine these hot topics! 17 & 18 March 2010

How to process personal information in
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Managing data throughout the organisation:
Evaluation of processes and procedures

Featuring key presentations from

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 COVER
LONG TERM
STORYY
INDUSTRY INSIGHT
Lessons from the past,
priorities for the future
At the of 2009, Enterprise Risk spoke to the
captains of the life industry about lessons learned in
2009 and strategies for 2010.
Leon Campher, CEO,
Association for Savings and
Investment South Africa
(ASISA)
Lessons learnt from 2009: 2009,
although tough, proved to the
savings and investment industry,
its regulators and our policy maker,
that we are largely on the right track
with our approach to regulation
and the way we do business. We
can be proud of our resilience
during global financial market
crisis the credit goes to a strong
regulatory framework overseen by
the Financial Services Board and the
largely prudential management of
businesses by the private sector. As
an industry, we were also surprised
by the faith displayed by our investors
as inflows into the savings and
investment industry remained largely
positive throughout the year.
Strategic priority for 2010: A key
strategic priority is to partner with
government and other stakeholders
ENTERPRISE RISK Feb 10
on the South African incorporated
strategy, promoting South Africa as
the economic gateway to Africa. The
savings and investment industry, as
represented by ASISA, must deliver in
terms of its continued relevance and
sustainability as the custodian of the
nations savings by growing a strong
public/private partnership based
on trust.
Steven Braudo, MD,
Liberty Life
Lessons learnt from 2009: 2009
reemphasised the fact that without
a happy and satisfied customer,
the entire industry is at risk. Harsh
economic times often force one to
reflect and take stock, and that has
certainly been true for us. We have
always known that the customer is
at the core of everything we do, and
2009 reaffirmed the importance of
22
resilience and flexibility to assist our
clients in tough times.
Strategic priority for 2010:
Without a doubt, one of our greatest
strategic priorities involves keeping
the customer at the centre of every
business strategy and decision. This
will involve not only bringing new
customers into the Liberty family, but
also retaining our existing customers
KEEPING THE CUSTOMER
AT THE CENTRE OF EVERY
BUSINESS STRATEGY
by remaining relevant and adding
value to their lives. I speak for the
Liberty team when I confidently say
that we are ready, willing and able
to shake things up and exceed the
highest expectations that we have set
for ourselves.
Phillip Matlakala, CEO,
Metropolitan Retail
Lessons learnt from 2009: Our
better-than-expected persistency
levels affirmed that our customers
are beginning to understand
the value of their investments
perhaps a sign of a shift towards
a savings culture? Legislative
reform has changed the way we
do business both operationally
and in principle with huge cost
implications. Intermediaries were
also affected with stringent FAIS
regulations forcing out those who do
not comply. This, coupled with the
fear of new graduates pursuing a
dying profession has created a skills
dearth.
Strategic priority for 2010: The
focus for 2010 will be on further
optimising the way we do business,
leading towards sustainable practices
that place the customer at the core.
We will continue in our commitment
towards improving financial literacy
by upskilling our intermediaries.
We anticipate that implementing
legislative changes will continue
throughout 2010. Our focus will be
on the things within our control, such
as active management, competitive
and appropriate products and
improving the quantity and quality of
our human resources.
Nicolaas Kruger, CEO,
Momentum group
Lessons learnt from 2009: Three
lessons deserve mention. The
value of effective and appropriate
risk management is the first
important lesson. It is critical for
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 COVER
LONG TERM
STORYY
life insurance companies to have
an in-depth understanding of
how their business will react to
different risks. Secondly, business
diversification provides protection,
as different business units
react differently to challenging
conditions. Finally, the past year
instilled a greater appreciation for
South Africas financial regulatory
landscape, where measures such
as exchange controls shielded
us from the worst of the global
financial crisis.
Strategic priority in 2010: I think
discussions around retirement
reform will accelerate in the next
year. Industry has a vital role to
play in shaping South Africas
future retirement landscape and
this will surely be a focus area
for life insurers during 2010.
As important is the debate and
consultation around the National
Health Insurance. Momentum
looks forward to working with
industry and government to
make meaningful contributions to
establishing a sound foundation
for an inclusive financial
services industry.
Selwyn Kahlberg, MD,
Alexander Forbes Life
Lessons learnt in 2009: Get
the basics right! This means a
strong back office, sound claims
management processes and a
great team of people three
factors that saw Alexander Forbes
navigate the recession with
success. A strong back office
ensures clients are happy and
ENTERPRISE RISK Feb 10
that management can access
the numbers (sales volumes,
cash flow, solvency) quickly
and confidently. Sound claims
management processes protect
against the increases in both
fraudulent and disability claims. A
great team of people will carry a
company through almost
any situation.
Industrys strategic priority for
2010: There are two priorities
for 2010 firstly, maintaining
solvency and profitability, while
being prepared for the next shock
to the system and secondly,
achieving growth in a highly
competitive space. The challenge
will be to create meaningful
product differentiation while
providing a value-for-money
proposition. The quality of the
brand will play a large role in
achieving success.
Herschel Mayers, Discovery
Life and Invest
Lessons learnt in 2009: It is
crucial to ensure that the business
is built on quality foundations.
The products offered have to
meet customers needs and
requirements in a dynamic, rapidly
changing environment. If the
right building blocks are in place,
growth, investment and positivity
is required, especially in tough
economic times. These are the
ingredients for ultimate success
when the economic cycle turns for
the better.
Strategic priority for 2010: Our
priority in 2010 will be to continue
24
to grow and invest in the business
in South Africa, and to ensure that
Discovery Life is at the forefront of
innovation, exhibiting leadership
in the life assurance industry. We
will also expand our operations
and success in the UK.
Liz Lambrechts, chief
executive, Sanlam Personal
Finance
Lessons learnt from 2009:
2009 clearly showed us how
important it is to have a visionary
long-term strategy for resilience
in good and bad times, and that
the courage to implement that
strategy, even in challenging
times, is crucial for survival.
Five years ago, the Sanlam
group embarked on a strategy to
PRODUCTS OFFERED HAVE
TO MEET CUSTOMERS
NEEDS AND REQUIREMENTS
diversify and place client centricity
at the heart of our business. This
strategy proved extremely resilient
and allowed us to perform well
this year.
Strategic priority for 2010:
Our greatest strategic priority
for 2010 is to reestablish the
trust of consumers and change
consumer behaviour. Consumers
are sceptical about both the
performance and the ethics of
our industry, and have a more
sophisticated understanding of
financial solutions. As such, they
now demand transparency, fair
treatment and better service.
The industry has gone some way
towards addressing such issues
but much remains be done in
2010 to raise the image of the
financial services industry and
position it as genuinely
client centric.
David Price, MD, Liberty
Corporate
Lessons learnt from 2009:
Liberty Corporate has had a
successful year, despite the tough
environment. As a business, we
have resolved to harness the
pressure of 2009 as a positive
catalyst for change. We have been
honoured to be recognised for our
efforts by winning two industry
awards: the 2009 FIA Employee
Benefits Product Supplier of the
Year Award and the 2009 PMR
(Golden Arrow) Award for Large
pension fund administrators and
product providers insurers.
Strategic priority for 2010: The
challenge in 2010 is to remain
focused on delivering on our
promises and building on a very
strong base in what is a constantly
changing environment. Top of
mind is making the customer
journey a seamless, pleasant
experience, and ensuring that we
are the first choice of advisers
across the field.

DISABLED EMPLOYEES
Reasonable accommodation
in the workplace
In practice, companies can do a great deal to accommodate disabled
employees and benefit from their skills and abilities while meeting
legislative targets. BY ANTON ENGELBRECHT, ALEXANDER FORBES HEALTH
The Commission of Employment Eq-
uity Report 2008 2009 from the Department of
Labour indicated that the percentage of permanently
employed people with disabilities in the formal sec-
tor has reduced from 1% to 0.7% compared with the
previous year, despite targets set by the employment
equity regulations.
People with disabilities experience high unemploy-
ment levels and often remain in low-status jobs. Ig-
norance, fear and stereotyping contribute to possible
unfair discrimination against people with disabilities
in society and in employment. This unfair disability
discrimination is perpetuated in many ways. There
are many unfounded assumptions about the abilities
and performance of job applicants and employees
with disabilities. Workplaces are sometimes inacces-
sible and training is not always appropriate for peo-
ple with disabilities.
FAR-REACHING BENEFITS
People with disabilities can contribute their skills and
abilities to the economy and society if employers re-
move unfair discriminatory barriers and provide rea-
sonable accommodation. The cost of claims on public
social security and occupational benefit schemes can
be reduced if employees with disabilities are retained
at work.
In practice, there is actually a lot that companies
can do accommodate disabled employees and ben-
efit from their skills and abilities, while meeting
legislative targets.
INSURANCE SOLUTIONS
For example, it is prudent for any employer to pro-
vide insurance cover for unplanned events such as
employees becoming disabled due to illness or ac-
cident. This would make employees eligible for in-
sured benefits if they were not able to perform their
regular occupation because of a disability resulting
from illness or accidental injuries. Group disability
insurance policies provide benefits on an income re-
placement basis or payment of a lump sum benefits
ENTERPRISE RISK Feb 10 EMPLOYEE BENEFITS
in conjunction with retirement benefits from the re-
tirement fund.
As such, the provision of disability insurance by
employers should be viewed as a part of a disability
risk management strategy in the workplace.
REGULATORY ISSUES
Historically, employers accepted the insurers deci-
sion in terms of the validity of the disability claim
submitted without applying the provisions stipulated
in Schedule 8 of the Labour Relations Act (LRA).
These provide a clear procedure requiring the em-
ployer to investigate any medical incapacity of an
employee prior to termination of the employee-em-
ployer relationship with an intention of retaining
the employee in his or her occupation or even a dif-
ferent occupation as far as reasonably possible.
Furthermore, the Code of Best Practice on Key
Aspects of Disability in the Workplace issued by
the Department of Labour provides a guideline for
employers, employees and their representatives to
develop, implement and refine disability equity
policies and programmes to suit the needs of their
respective workplaces.
A number of initiatives can be undertaken by em-
ployers not only to comply with the requirements of
the Code of Best Practice but also become the em-
ployer of choice for persons with disabilities.
Designing a strategy that would achieve compli-
ance with the Code of Best Practice as well as assist
companies become an employer of choice would in-
clude the following objectives:
ensure all human resource policies comply with
relevant legislation, i.e. Employment Equity Act ANTON
and the abovementioned Code of Good Practice ENGELBRECHT
create an environment that is disabled-friendly, Engelbrecht (BMedSci,
physically accessible and socially accommodative BSc (hons) Bio
Systems Cum Laude,
actively drive to recruit and select suitable disabled
MBA) is a business
candidates for all vacancies and to rehabilitate and
development and
train employees who become disabled strategic consultant
provision of further training and career advance- at Alexander Forbes
ment opportunities for persons with disabilities. Health.
25
 EMPLOYEE
COVER STORY
BENEFITS
Y ENTERPRISE RISK Feb 10

RETIREMENT RA SEASON

Lump sum RA contributions

for tax benefits
The tax season is upon us and many employees will be considering
lump sum RA contributions to reduce their tax liabilities. Enterprise
Risk asked the experts about the implications for stakeholders.

The main purpose of an RA fund is to to 36 %, explains Anton Swanepoel, legal advisor at

provide a life annuity upon retirement of a member of Sanlam law service. The part of the retirement benefit
55 years or older, or annuities for the dependants or that is not taken as a lump sum must be used to provide
nominees of deceased members. a pension to the member for life. The pension instal-
In order to encourage saving for retirement, the In- ments are taxed as income at marginal tax rates.
come Tax Act allows for deductions from a taxpayers
income, up to certain limits, for contributions made to- TAX OR RETIREMENT SOLUTION?
wards retirement savings, explains Navin Ramparsad, Liberty group notes that retirement annuities were in-
head: legal and compliance at Momentum Wealth. Typ- troduced to allow self-employed individuals to save for
ically, clients can claim a deduction equal to a maximum retirement and qualify for a tax deduction. Retirement
of 15% of non-retirement funding income; or R1 750; or annuities are long-term savings vehicles and are not
R3 500 less allowable pension fund contributions. meant to be used merely as a means to reduce income
In terms of current legislation, contributions in excess tax, but rather as a vehicle for saving for retirement.
of the allowable deduction will be taken into account They should form part of an individuals overall retire-
at retirement and potentially increase a clients tax-free ment saving strategy, says Stuart. If saving tax is the
amount. It is advisable to contribute as much as possible primary goal then a retirement annuity and a lump sum
towards retirement savings, but at the very least clients contribution into this vehicle allows for that but be care-
should endeavour to contribute at least the maximum ful of the unintended consequence of market volatility,
allowable deduction towards retirement, as this will also in other words, losing capital over the short term if the
assist in minimising their tax liability. retirement annuity is invested heavily in equities.
Erica Stuart of Liberty Group Advisory Services elabo- Ramparsad concurs, Ideally the goal should be to
rates: If a client contributes a R100 000 lump sum contribute towards retirement savings. It just so happens
into his/her retirement annuity then he/she would that to encourage such savings the government provides
qualify for a deduction. SARS will apply the formula tax advantages both during the contribution stage and
to determine what the tax deductible amount would at retirement.
be. It is important to note that if an employee Any decision to make contributions to an RA fund
qualifies for a tax deduction now, these should be taken as part of a persons long-term retire-
amounts will be deducted from his/her ment funding plan. It is recommended that employees
tax-free amount at retirement. consult a duly licensed financial advisor before taking
Upon retirement, up to one-third decisions in this regard, says Karen de Kock, head of
of the benefit may be taken as a lump annuities at Sanlam employee b.enefits.
sum. Up to R300 000 of the total lump
sum received from pension, provident IMPORTANT CONSIDERATIONS
and RA funds during a persons life- If a client decides to invest in a retirement annuity then
time is tax free and any balance is taxed
it is important to note that he/she cannot access his/her
at incremental rates ranging from 18 money before age 55 and he/she can also not take loans
against the fund value, cautions Stuart.
There are exceptions to this rule, for exam-
T O ENCOURAGE SAVING FOR RETIREMENT THE , ple, in the case of a divorce order, funds may
I T A
NCOME AX CT ALLOWS FOR DEDUCTIONS FROM A be transferred to a non-member spouse or
in terms of a maintenance agreement and if
,
TAXPAYER S INCOME UP TO CERTAIN LIMITS .
NAVIN
you emigrate you can access these funds. In
RAMPARSAD, HEAD, LEGAL AND COMPLIANCE, MOMENTUM WEALTH addition, if the tax-deduction is taken now,

26
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Strategically delving into the current legislative
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EMPLOYEE
COVER STORY
BENEFITS ENTERPRISE RISK Feb 10

the market is always higher, notes Stuart. Those con-

cerned about investing a lump sum into a retirement
annuity could contribute monthly instead. This would
smooth the buy-in price by using rand-cost averaging.
When investing a lump sum into a retirement annuity,
one buys in at the price at that time and rand cost av-
eraging will not apply as it does with monthly contribu-
tions. Care should also be taken with the portfolios the

THE RISK OF INVESTING A LUMP SUM INTO THE MARKET IS

ALWAYS HIGHER KAREN DE KOCK, HEAD, ANNUITIES, SANLAM EMPLOYEE BENEFITS
retirement annuity funds are invested in. Where an in-
vestor is nearing retirement, investments should be less
aggressive, and have a smaller equity component, as the
investor has less time to sit out market volatility.

WHERE DOES THE BUCK STOP?

then a person cannot qualify for it again at retirement According to Stuart, during the financial planning proc-
and the tax-free amount will be reduced by the amount ess when the discussion regarding retirement planning
already taken. and savings takes place between the client and the fi-
Ramparsad says the considerations should rather be nancial advisor, and when a solution is recommended to
how much one needs for retirement purposes, there- address the issue of saving for retirement, the financial
fore how much one needs to save per year either on a advisor should explain and disclose all the costs and
monthly, ad hoc or lump
sum basis to achieve that
SAVINGS IN SOUTH AFRICA
goal. If the tax benefits Statistics show that the average South African is not saving enough for retirement.
Estimates show that only six percent of people can afford to retire. People are struggling to
are reduced or elimi-
make ends meet and only survive from month to month by balancing the bills. Cashing in
nated, it would not
on retirement savings can make retirement disastrous. People also tend to spend money
take away the on tangible assets such as houses and cars instead of retirement. There is a tendency to
need to save for look short term at financial goals with not enough focus on retirement planning.
retirement.
Swanepoel advises that any decision to benefits of a product before concluding the business. If
make a lump sum or regular contribution to the advisor recommends a retirement annuity to the cli-
an RA fund should be taken after consulta- ent, the financial advisor needs to go through all the
tion with a financial advisor and should take benefits of a retirement annuity and not just highlight
into account the total long-term retirement the tax deductibility of the contributions and lump sum
funding plan. Factors that could be con- payments into the retirement annuity. However, the
sidered will include, among others, age, onus is also on the client to understand what he or she
current retirement provision, income, is buying and what the benefits are and whether there is
tax, risk tolerance with regard to in- going to be any tax deductions.
vestments, the investment choices In my view, the industry is responsible for educating
offered by a particular RA fund clients on the benefits of saving towards retirement, both
and the costs charged by the fund. from a tax point of view and post-retirement needs point
The two most important factors of view, says Ramparsad. In a personal interaction I
that will influence retirement would consider the tax advisor and or financial planner
planning will be longevity and to be better suited to provide the client with information
investment returns before and and advice regarding the tax implications of contribut-
during retirement. ing towards retirement and the benefits thereof.
De Kock adds that the impact Swanepoel believes that it is a persons duty to obtain
of both factors on retirement as much information as possible before becoming a
planning should be discussed member of a particular RA fund. It is strongly recom-
with a financial advisor, and the retire- mended that employees consult their financial advisors
ment fund products and all terms and for advice in this regard."
conditions should be well understood. The advisor should be able to also advise the client
The risk of investing a lump sum into on the tax implications, but a tax advisor could also
be consulted. The RA fund itself
R -
ETIREMENT ANNUITIES ARE LONG TERM SAVINGS VEHICLES will provide information on the
fund and its benefits, however,
AND ARE NOT MEANT TO BE USED MERELY AS A MEANS TO
the trustees of the fund may not

REDUCE INCOME TAX ERICA STUART, LIBERTY GROUP ADVISORY SERVICES offer financial advice.

28
 EMPLOYEE
COVER STORY
BENEFITS
Y ENTERPRISE RISK Feb 10
EB IN AN ECONOMIC DOWNTURN
The risk ofnot having
employee benefits
There are some considerations to take into account when deciding if
providing employee benefits will also benefit your business and the
bottom line. BY TARYN MARCUS, LIBERTY CORPORATE
Recent financial turmoil has
put many companies under pressure where provi-
sion of good employee benefits is concerned. A
good employee benefits strategy can go a long way
towards keeping a workforce focused and engaged.
Most employees today, even employees that work
for minimum wage, expect some form of employ-
ee benefits. It is important that employers care-
fully consider the impact of putting an embargo
on salary increases, cancelling bonuses, reducing
IT IS NOT UNCOMMON FOR EMPLOYEES TO
SEEK GREENER PASTURES WHEN BENEFITS ARE
CUT OR SCALED BACK
employee benefits or laying off employees before
doing so. These approaches should be considered
as a last resort.
This is because such actions, which may be com-
pletely valid for the survival of the business, could
have long-term adverse effects on a companys
most valuable assets - its employees.
EMOTIONAL REACTIONS TO CUT-BACKS
Bear in mind that employees can view their benefits
very personally many have an emotional connec-
tion to them. Cancelling or cutting back on em-
ployee benefits can cause havoc internally. It is not
uncommon for employees to seek greener pastures
when benefits are cut or scaled back. The costs as-
sociated with the loss of accumulated institutional
TARYN MARCUS knowledge, reputational damage and productivity
Marcus is an HR deficits resulting from outgoing and later, incoming
business partner: employees, may dwarf those savings from cutting
Liberty Corporate employee benefits.
and specialises in
people development. EB BENEFITS
She has a BA human
Some of the other benefits of offering or maintain-
resources (cum laude),
BA honours Industrial ing employee benefits include certain tax advan-
Psychology (cum tages that companies get through deducting plan
laude), and an MA contributions.
industrial psychology. Secondly, employees often accept better benefits
30
in lieu of a higher salary, which can be a savings
vehicle for the company.
Thirdly, offering benefits to employees also can
be advantageous to the business owner, who may
be able to get personal benefits for less money than
if he or she had purchased them privately.
Finally, offering health insurance has been shown
to decrease absenteeism and improve employee
health and morale.
RANGE OF OPTIONS
It is clear that there are many advantages to hav-
ing a good employee benefits offering in place.
Even though this may seem like a daunting task to
some, employers need to keep in mind that there
are many flexible options to choose from. Many
employers today are offering employee benefits in
more creative ways to satisfy the emerging, unique
interests of their employees. For example, many
businesses are now offering onsite childcare, re-
duced fees on cell phone contracts and other luxu-
ry items, reduced banking administration fees and
concierge desks.
Overall, in a time of economic downturn and
uncertainty, it is imperative that companies retain
their most productive and valuable employees. Even
when the economy is sluggish, companies still need
to continue operations, maintain business relation-
ships, provide good products and services, and find
new avenues of growing the business. These goals
cannot be accomplished unless companies have
their best people in place.
CHOOSING THE BEST STRATEGY
So what is the best strategy during down times?
Communicate to your employees the value (in
rands) of their total benefits package. Such commu-
nication will assist in generating awareness of just
how much the company values them. This should in
turn result in engaged and committed employees,
and lead to better performance and business results,
as well as an increase in the companys ability to
win the war for talent.
 ENTERPRISE RISK Feb 10 RISK MANAGEMENT

SPECIALISED RISK MANAGEMENT DISCIPLINES

Integrating specialised risks

in ERM
As organisations move towards more mature risk management,
specialised risk management disciplines are implemented to manage the
more significant risk areas. BY VANESSA PAYNE, IQ BUSINESS GROUP

In the last
few years, risk manage-
ment has moved from a
silo-based approach to
a more enterprise-wide
approach, which is in-
tegrated throughout an
organisation at all levels
and addresses all types of
risk, including special-
ised risks.
In many organisations,
the implementation of
these specialised risk
management disciplines
is in response to various
codes and regulations,
such as Basel II, King
III, the National Credit
Act and other new and
draft legislation. In a
typical chicken and egg
scenario, the success of
specialised risk manage-
ment and the maturity
of enterprise risk man-
agement are dependent
on each other. Without a
culture of risk manage-
ment in an organisation,
advanced risk manage-
ment processes may not
be appreciated; however,
the use of such processes
and tools may increase
the awareness and matu-
rity of risk management.
are shown and these are briefly defined in to high- DIAGRAM 1 The most
FITTING THE PIECES TOGETHER light their importance to a company. important specialised
There are various specialised risk management disci- RM disciplines
plines, including several that form part of financial BUSINESS CONTINUITY MANAGEMENT
risk management. In diagram 1, some of the most Every organisation can at any time experience a
important specialised risk management disciplines serious incident that can prevent it from continuing

31
 RISK MANAGEMENT ENTERPRISE RISK Feb 10
ENTE 0
normal business operations. Business continuity is
defined in the British Standard 25999:2006 as a
holistic management process that identifies poten-
tial threats to an organisation and the impacts to
business operations if those threats are realised. It
also provides a framework to build resilience in the
organisation.
PROJECT RISK MANAGEMENT
Projects, particularly those with a significant capi-
tal investment, may pose a potential threat to an
organisation if not managed appropriately. Project
risk management assists in ensuring that project-
specific risks are identified and their causes deter-
mined to ensure that appropriate strategies could
be planned to manage such risks. Risk manage-
ment activities are applied at all stages within a
project life cycle.
SUSTAINABILITY RISK MANAGEMENT
This refers to the effective management of envi-
ronmental, social and economic priorities in an
organisation. Included in King III, sustainability is
OPERATIONAL RISK MANAGEMENT IS
PARTICULARLY MATURE IN THE BANKING
INDUSTRY DUE TO BASEL II REQUIREMENTS
referred to as one of the most important sources
of both opportunities and risks for businesses and
that nature, society and business are interconnect-
ed in complex ways that should be understood by
decision makers.
OPERATIONAL RISK MANAGEMENT
This is defined as the risk of loss resulting from
inadequate or failed internal processes, people and
systems or from external events. Typical compo-
nents of an operational risk framework include
loss data collection, risk and control self-assess-
ment, issues and action plans, key indicators and
key risk scenarios. Operational risk management is
particularly mature in the banking industry due to
Basel II requirements, but the tools and processes
used can assist any organisation in the manage-
ment of their risks.
VANESSA PAYNE CREDIT RISK MANAGEMENT
Payne is part of The Credit risk management enables an organisation
IQ Risk Team at The
to optimise measures to reduce and manage their
IQ Business Group
aggregated default risk and link measurement to
and has six years
marketing strategies through methods like risk
risk management adjusted pricing, all the while hedging positions
experience, specifically
to the organisations broader ERM framework
in developing and
implementing and ensuring regulatory compliance requirements
risk management are met. Certain key principles and factors must be
frameworks. considered in managing credit risk and credit risk
32
tools are required for the practical implementation
and management of credit risk.
CREDIT RISK TOOLS
These include quantitative calculation engines,
qualitative scoring guides and credit-risk manage-
ment reporting systems. Such tools aid both the
measurement and the processes to manage credit
risk in an organisation. The time and monetary ef-
forts employed to create or implement a tool or
system must appropriately balance the magnitude
of the risks it is intended to measure.
CONSUMER CREDIT RISK MANAGEMENT
This involves understanding the risk a consumer
presents to an organisation before granting that
consumer any type of loan. Crucial issues in this
regard include how to determine the associated
risk and how to set appropriate strategies for risk
management and risk mitigation throughout the
lifetime of a loan.
It further involves aspects of targeting the right
customer with the right offer, selecting the cus-
tomers with acceptable risk profiles in the acqui-
sition phase, managing these customers and un-
derstanding their repayment behaviour; and lastly,
how to determine a collections strategy effectively
for each individual customer.
MARKET RISK MANAGEMENT
Market risk management is concerned with the
monitoring and management of an organisa-
tions potential exposure to its portfolio value as
a result of changes in market prices. The main
contributors to market risks are typically equity
prices, interest rates, foreign exchange levels and
commodity prices.
LIQUIDITY RISK MANAGEMENT
This involves the monitoring and measurement
of current and future cash flows, whether known,
expected or unexpected, to ensure an organisa-
tion will continually be able to meet its finan-
cial obligations. The management of liquidity is a
critical factor in ensuring the ongoing survival of
an organisation.
EXCITING NEW SERIES!
In the next 10 editions, the risk management experts from
IQ Business Group will be covering the specialised risk
management disciplines detailed above and their fit within
enterprise risk management in detail, including the five
disciplines that form part of financial risk management. In
each part in the series, an overview of the risk discipline,
available tools and practical necessities will be discussed.
Dont miss the next edition in which the series will
kick off with an in-depth look at business continuity
management.
Rooth Wessels Motla Conradie presents

THE NEW COMPANIES ACT

AND
KING III REPORT SEMINAR
BUSINESS IS
MOVING
FORWARD
The tide of business in South Africa PROFESSOR PIET DELPORT
has changed once again PROFESSOR MERVYN KING
It would appear the tide of business has changed in ing on Corporate Governance and the rights and duties of
South Africa once again, with the implementation of shareholders and directors under the New Act as well as
the New Companies Act early in 2010. This Act will the interaction between the new system and the Common
have far reaching implications for all business owners Law and Codes of Conduct.
alike.
Professor Mervyn King recaps the background to King I,
Most of us have no idea how to react to something of this II and III Reports on Corporate Governance. He will
magnitude with many laws being also unpack the concept of Gover-
changed and new ones being instated. ROOTH WESSELS MOTLA nance in the context of South African
The whole conduct of business law is CONRADIE HAS SET UP A business as well as the relationship
being changed. Rooth Wessels Motla
ONE DAY SEMINAR IN between King III and the New Compa-
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 EXECUTIVE SECTION
INDUSTRY EVENTS
SAICA Annual Financial Services
The South African Institute of Chartered Accountants (SAICA) recently
hosted the SAICA Annual Financial Services Conference a landmark
conference themed Shaping the Future Beyond the Global Financial Crisis.
The SAICA Conference brought to-
gether delegates from across the financial
services industry to discuss issues and chal-
lenges common to the industry against
the background of the economic down-
turn as well as the short- and medium-
term outlook.
In particular, important risk aspects were
highlighted, together with sustainable de-
velopment strategies and processes. The
solutions that emerged from the conference
will assist businesses as they strive to steer
clear of the challenges that lie ahead.
A number of high-profile speakers high-
lighted some of the most pressing issues in
the industry.
RISK MANAGEMENT MODELS
Risk management models have to be simple,
enterprise wide and integrated if they were
to succeed, Johan van Graan, Vodacoms
chief risk officer told delegates. In addition,
Van Graan recommended that future risk
management approaches and practices be
owned by the business.
Perceptions in the boardroom must
change. Key to any fresh approach designed
to prevent future crises is a strategy to re-
spond to global failures, complying with
King III and policies designed to ensure
long-term sustainability.
He maintained that risk management
models of the past had been too compli-
cated. They were not integrated into a
businesss day-to-day activities. Nor were
they sufficiently focused, attempting as
they did to cover too diverse a number of
issues, among them enterprise resource
management, credit, health and safety, and
business continuity.
REPORTING ON RISK MANAGEMENT
Prof. Wiseman Nkuhlu, former economic
advisor to the State President, told dele-
gates that risk reporting had assumed much
importance in corporate life because risk
ENTERPRISE RISK Feb 10
ENTE 0
management is integral to value creation.
The financial crisis had revealed that there
is over-reliance on statistical or mathemati-
cal risk valuation models that used historic
data. There had been too little involvement
of senior of senior executives and directors
in exercising judgement.
Nkuhlu emphasised how crucial it was for
business entities to report on how risks were
managed when they reported on economic
performance. Failure to do so is failure to
provide vital information to investors and
others who have an interest in evaluating
the performance and future prospects of the
business entity.
He pointed out that the increased com-
plexity of business processes and products,
consumer activism, regulatory requirements
and globalisation had all increased the need
for effective risk management and risk re-
porting. As a consequence, reporting on
risk management has become a require-
ment in most corporate governance regu-
lations and codes. However, the financial
crisis has revealed that boards of directors,
including audit and risk committees, have
an inadequate appreciation of the nature
of risks and risk management processes of
their companies.
Nkuhlu said that the evidence of published
financial statements gave little insight into
the comprehensiveness and quality of risk
management processes. Most companies
only report that they have adopted com-
pany-wide enterprise risk management and
that they have well-functioning board risk
management committees.
He referred to the G20s description of the
root causes of the financial crisis. During
a period of strong global growth, growing
capital flows and prolonged stability ear-
lier this decade, market participants sought
higher yields without an adequate appre-
ciation of the risks and failed to exercise
proper due diligence. At the same time,
weak underwriting standards, unsound risk
34
management practices, increasingly com-
plex and opaque financial products and
consequent excessive leverage combined to
create vulnerabilities in the system.
Policymakers, regulators and supervi-
sors in some advanced countries did not
adequately appreciate and address the risks
building up in financial markets, keep pace
with financial innovations or take into ac-
count the systemic ramifications of domes-
tic regulatory actions.
The conclusion was that risk had not been
adequately appreciated by boards of direc-
tors and investors.
Why? asked Nkuhlu. Because of de-
ficient risk reporting. He said the most
important lesson was that directors had to
take increased responsibility for risk man-
agement and reporting. They must make
sure that they understand the products of
their companies and the risks involved.
They should not over-rely on credit rating
agencies.
He also stressed that risk management
should not only be a corporate governance
compliance issue but a business imperative
that had to be taken seriously by every di-
rector committed to fulfilling his fiduciary
duties to the company and society. Nkuhlu
urged stock exchanges, accounting standard
setters and other regulators to review guid-
ance on risk management and reporting.
There should be a serious review of risk
management practices. There should be
guidance regarding where risk management
information should be disclosed in the com-
panys integrated reports.
REGULATION COMPLIANCE
Sandy van Esch, director: standards at the
Independent Regulatory Board for Auditors
(IRBA), told delegates that companies often
spent more time on compliance than on run-
ning their business. She said the regulation
was a significant disincentive for SMEs and
SMMEs for several reasons, among them:

Conference
they suffered a larger cost burden
penalties for non-compliance can add dispropor-
tionately to costs
they did not have the scale of operations to offset
regulatory costs
there was a limited capacity to appoint compliance
staff.
Many regulators have an infallible belief that more
regulation will prevent corporate failures, corruption
and fraudulent financial reporting, and that more
regulation would ensure compliance, limit excessive
greed and enhance performance and accountability.
Van Esch recommended that a regulatory impact
assessment, performed by independent assessors,
should be required for all legislation before promul-
gation. At the same time, legislation and regulation
creates stability in particular in lessening the im-
pact of the global financial crisis. The impact of the
financial crisis is not as severe in South Africa as in
other countries.
A factor in this phenomenon was South Africa
having been ranked second out of 133 countries by
the Global Economic Forum 2009/2010 survey for its
auditing and accounting standards.
DEVELOPING AND INSPIRING EMPLOYEES
South African corporations should develop and in-
spire their employees as a core strategy to emerge ro-
bustly from the economic recession, said Matsobane
Matlwa, executive president of the South African In-
stitute of Chartered Accountants (SAICA).
We cannot succeed without appropriately equip-
ping the people in our organisations to deliver on
the missions and visions of their respective compa-
nies, commented Matla. Business leaders have to
ask themselves how they can involve or enable the
thousands of unemployed people to participate again
in the recovery of the South African economy. We
cannot claim to be in a state of recovery if thousands
of people are still without jobs or merely because fi-
nancial markets are showing signs of reviving.
Matlwa also said that SAICA would maintain stand-
ards with a view to upholding the the reputation of
the accountancy profession in the marketplace.
NHI NOT FOR SA
Gavin Came, CEO of Sasfin Financial Services told
delegates that the National Health Insurance (NHI)
was not suitable for
South Africa. NHI is a W '
E CAN T SUCCEED WITHOUT APPROPRIATELY EQUIPPING THE PEOPLE
health-care financing
system, not a health-care
IN OUR ORGANISATIONS TO DELIVER ON THE MISSIONS AND VISIONS OF
provision system.
THEIR RESPECTIVE COMPANIES MATSOBANE MATLWA, EXECUTIVE PRESIDENT, SAICA
ENTERPRISE RISK Feb 10 EXECUTIVE SECTION
He noted that countries that had NHI systems were
generally highly developed economies, with large
taxpayer bases and high levels of personal income,
low levels of unemployment and income inequality,
and could afford to subsidise the minority of those
who were unemployed and unable to contribute.
Came said that in 2007, 15.6% of the population
had been beneficiaries of medical schemes, a statistic
that should be viewed against the background of a
taxpayer base comprising:
5.2 million individuals
1.6 million companies
379 675 registered employers
384 747 trusts
745 487 registered to pay VAT
taxpayers comprising some 10% of the
total population.
Addressing the issue of whether or not the country
had sufficient money to administer NHI, Came high-
lighted a 2009 estimate of R5.6 billion for current ad-
ministration and managed-care fees. An additional
41 million beneficiaries at current costs would add
R28.2 billion per year. This cannot happen.
Rather, he suggested a solution whereby there was
an acceptance that health-care finance needed to be
extended and that provision of health care for the
unemployed be funded by income tax. We need to
consider employer-mandated cover for all workers
seriously.
This will grow the cur-
rent market penetration from
around 16% to 28% of the
population with no new in-
frastructure. We also need to
reconsider prescribed mini-
mum benefits (PMBs) and ba-
sic benefits packages to make
a lower cost option more af-
fordable.
The quality of public health
facilities must be improved
so that they compete with
the private sector in the pro-
vision of PMBs. We need to
make health care a South
African global competitive
advantage which will benefit
residents.
35
 ASSOCIATION PAGES
IRF
Taking the retirement industry
into the future
Enterprise Risk spoke to Shantha Padayachee, president of the
Institute of Retirement Funds, about the organisations role in the future
of the industry.
The Institute of Retirement
Funds (IRF) represents retirement funds in
South Africa. Membership is voluntary, al-
though its value cannot be overemphasised
given the dynamic nature and increas-
ing complexities of the current retirement
landscape.
Essentially, the IRF provides individual re-
tirement funds with a collective voice in in-
teractions with statutory bodies such as the
FSB, SARS, the Department of Social Devel-
opment (DSD) and the National Treasury.
FAR-REACHING IMPACT
The IRF currently has around 900 members,
including retirement funds, trustees, legal
and technical experts from various service
providers, pension lawyers, asset managers,
risk managers, asset consultants and more.
Members enjoy significant benefits includ-
ing a voice in discussions around legal and
regulatory reforms, quick access to industry
expertise and up-to-date information. The
ENTERPRISE RISK Feb 10
annual IRF conference is the biggest event in
the industry, while popular practical work-
shops are presented during the year.
Despite its important role, the IRF is self-
funded. There have been suggestions that
the FSB should make membership compul-
sory, since the entire industry benefits from
the IRFs activities. Indeed, even the gov-
ernment bodies such as the FSB and SARS,
which simply do not have sufficient resourc-
es and are removed from the industry issues,
are dependent on the IRF for expertise and
guidance. The IRFs legal and technical com-
mittee plays an important role in assisting
these statutory bodies to understand the
implications and ramifications of various
legislative initiatives and regulatory inter-
ventions. In essence, they help government
create solutions.
The legal and technical committee also
has a proactive approach meeting with the
various regulatory bodies quarterly to dis-
cuss issues and proposals for amendments to
existing legislation and regulations are sub-
mitted to address identified problems.
GLANCING BACK
The IRF has not featured strongly in the
public eye, as a result of the FSBs decision
to split the IRF into two bodies representing
trustees and service providers, and to trans-
form the board to be more representative.
The funding for this transformation ini-
tiative did not materialise, leaving the IRF
in limbo, so to speak, from a public relations
perspective, explains Padayachee. Never-
theless, during this time the IRF continued to
fulfil its crucial role in the industry and now
Shantha Padayachee has served the
retirement fund industry as an attorney
for a number of years and became
president of the Institute of Retirement
Funds in 2009
36
we are ready to proceed with renewed focus
into the future.
HARNESSING INDUSTRY EXPERTISE
One of the reasons behind the proposed re-
structuring was a misperception that the IRF
is biased towards service providers. Howev-
er, service providers are included in the IRF
membership for a very valid reason.
Padayachee explains that service provid-
ers are the employers of choice for the very
best legal and technical experts in the small
local retirement fund industry. These retire-
ment fund specialists have their fingers on
the pulse of local developments and are able
to fund research on international trends and
access experts from overseas jurisdictions.
They also have many years of experience
dealing with the real practical issues, and
with the regulators. Their experience and
expertise are an invaluable resource which
benefits the entire industry.
The IRF is served by 18 non-remunerated
board members. The secretariat features just
five permanent members to represent of
interests of an estimated 8 000 retirement
funds.
For this reason, the expertise and indus-
try resources brought by the legal and tech-
nical experts at the service providers on a
voluntary basis are crucial. Likewise the IRF
provides a crucial platform for coordinated
interaction with the regulators.
LOOKING AHEAD
Although we continued to play a crucial role
behind the scenes over the last few years,
our new, more representative board can now
assume a more public role in the industry,
to ensure that the interests of our members,
and ultimately the beneficiaries of the retire-
ment funds, are protected and served in the
best way possible, says Padayachee.
 ENTERPRISE RISK Feb 10 ASSOCIATION PAGES

FIA
FIA welcomes
The FIA received many applications
from senior executives for the CEO position
but was particularly impressed with Manies
new CEO
and has worked extensively in both local and
global markets a factor which will serve
both the FIA and its members well.

prior experience and success with manag-
ing another national industry association
the South African Meat Industry Company
(SAMIC), says FIA president, Arnold van
der Linde.
Booysen is credited with transforming
South Africas meat industry, which was
faced with a number of transitional chal-
lenges some time back. During his tenure
with SAMIC, among other achievements,
Manie was awarded a certificate of apprecia-
tion from the director general for the Depart-
ment of Agriculture for achievement in BEE
projects, says Van der Linde. Booysen, who
holds a BCom degree, also spent a number
of years with Armscor, Renwick, subsidiaries
within Malbak and other firms. He has been
responsible for the turnaround of companies
About management
The FIA board recognised that in the rap-
idly changing world of financial services, it
was important to appoint an individual who
is unhindered by stereotypical industry ap-
proaches and is therefore able to bring fresh
perspective and insights, says Van der Linde.
Solutions to our current challenges lie in
creative thinking and not in fixed historical
perspectives.
Booysen is respected for his strong man-
agement, leadership and relational skills and
will take the FIA into a new era. Manie will
be supported by an excellent team at the FIA
and together, they will reshape the associa-
tion and ensure it meets members needs and
makes a positive contribution to remodelling
the insurance and assurance landscapes in Newly appointed FIA CEO,
our country, says Van der Linde. Manie Booysen

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 MARKET NEWS ENTERPRISE RISK Feb 10

GREEN BUILDINGS

Re-energising tired assets to reduce operating costs

With uncertainty in the economy,as well as increasing environmental pressures and changing legislation, making the
most of existing buildings is an important priority for both public and private owners and occupiers.

While existing buildings
are valuable assets fundamental
to a successful operation, they
consume significant energy,
resources and investment. In fact,
buildings use around 40% of energy
worldwide and with over 90% of the
building stock already existing, it is
imperative that the current building
stock becomes more efficient
and reduces carbon emissions to
combat global warming.
Getting more from existing
buildings will benefit users, the
community, the environment,
business and the bottom line.
Conversely, inaction means that
running costs will increase further,
buildings will be penalised for
poor performance, competitive
advantage will decline and users
will look elsewhere. According
to international engineering and
consulting group, Arup, greener
buildings also hold exciting
prospects for urban areas.
Increasing the useful lifespan, as
well as the commercial and visual
value of existing buildings will not
only benefit owners and users; but
will act as a catalyst to rejuvenate
decaying and unsafe urban
environments to the benefit of all
community stakeholders.
SIX STAGES OF RETROFIT
Determine your baseline.
Review your building
maintenance and operational
issues.
Establish your targets and goals.
Decide on an appropriate level of
refurbishment.
Select your optimal upgrade
initiatives.
Implement the strategy.
Property owners and managers
who want to green their current
buildings will find that the
challenge is not as enormous
at it may seem if the process is
planned according to the six main
stages of a retrofit. For those who
realise the benefits of maximising
value by refreshing building stock
which is no longer performing in
line with market expectations, the
Green Building Council of South
Africa (GBCSA), together with Arup,
has published Existing Buildings
Survival Strategies. The publication
details the process of retrofitting
existing buildings to become
greener and more efficient. The
publication has been supported
by Eskom and has a major focus
on energy efficiency, while also
addressing issues such as water,
management and waste.

MEET THE WINNERS

Sixth annual Top Women Empowerment Awards

The sixth annual Top Women Awards recently honoured South Africas corporate pioneers, government employees
and entrepreneurial heroes at the forefront of gender equality.
The annual Top Women TOP GENDER EMPOWERED ORGANISATIONS
Awards are an opportunity Top Gender Empowered Company: Mining, Engineering and Construction SEW Eurodrive
to celebrate companies and Top Gender Empowered Company: Science, Pharmaceuticals and Health Sechaba Medical Solutions
individuals who contribute to the Top Gender Empowered Company: Transport Hauliers Consortium
empowerment of women, who Top Gender Empowered Company: Financial Services PricewaterhouseCoopers
inspire transformation and who Top Gender Empowered Company: ICT Nashua Mobile
strive to effect change through Top Gender Empowered Company: Business Support Services Adams & Adams
their business practices and within Top Gender Empowered Company: Emergent Companies and SMMEs Three City Events
communities. National, Provincial or Local Government Department Department of Public Works
AND THE WINNER IS Government Agency or Parastatal Gender Links
Sechaba Medical Solutions, one of Top Women Owned Company Voltsing Electrical
the leading South African health
administrators and the first 100% INDIVIDUAL AWARDS
black-owned administrator in the The Honorary Lifetime Achievement Award Joyce Piliso-Seroke
country was announced as the Top Woman of the Year in Business Johanna Mukoki, Travel with Flair
overall winner of the prestigious Top Woman Entrepreneur Jacqueline Carrol, Media Works
Top Gender Empowered Company Top Young Woman Entrepreneur Johanna Mukoki, Travel with Flair
award. In addition, Sechaba also Top Woman Executive Judy Van Es, Murray & Roberts
scoped the award in the Top Top Woman in the Public Sector Hendrietta Ipeleng Bogopane-Zulu, Department of Public Works
Gender Empowered Company:
Science, Pharmaceuticals and
Health Category. INDEX TO ADVERTISERS
Sechaba has a total female staff Chartis Insurance 2 Frontfoot ( New Company Lombard Insurance 18/19
CQS IFC Act & King III 33 New Companies Act 23
complement of 78% with 69% in
Credit Guarantee 11 IDI Technologies 41 Miningne.ws 37
management and 20% of their Cura Software 1 In-House Council 15
Protection of Personal
board of directors and shareholders Directors Forum 2010 27 Liberty Corporate OBC Information Bill 21
are female. Lombard Insurance 17 Sechaba Medical 13

40
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knowledge base in a variety of highly relevant topics and to widely circulate this information, in a
number of ways, to the benefit of the company, its directors, management and staff

For additional information please visit our websites at www.cgf.co.za | www.corporate-

governance.co.za or contact +27 11 476 8264/1/0

Governance Beyond Boards

CGF Honorary Patrons : Dr Mathews Phosa | Prof. Shirley Zinn

CGF Patrons: ContinuitySA (Platinum) | Spescom DataVoice (Silver) CGF is a Strategic Partner of ProudlySA
 Liberty Group Ltd is an authorised nancial services provider (no. 2409) OPENCO 6157/E/ER

Liberty Corporate
Receiving the FIA and PMR Employee Benets industry awards says a lot about us and our commitment to product innovation, administrative
eciency and transparency. More importantly, it says a lot about what we can do for you. With over 50 years experience and 12,000 funds
currently under administration Liberty Corporate can help your company by helping your employees take control of their lives.

Contact an accredited Liberty Wealth Adviser or call our Client Support Centre on (011) 408 2999.
www.libertycorporate.co.za

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