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South Africa

Africa's largest non-life market has introduced insurance innovations to the rest of the world

The South African non-life market is slightly larger than all of the other sub-Saharan markets put together, according to Nigel Stitt, an international insurance consultant at Axco Insurance Information Services. “In terms of sub-Saharan Africa, the South African market is totally outstanding.” Stitt’s colleague, Ilona Krohn, an international insurance consultant at Axco Insurance Information Services, agrees. “It’s an incredibly sophisticated market,” she says. During the years of apartheid, South Africa was largely isolated from the rest of the world and was forced to develop its own local insurance market. “The majority of companies that are strong in the market are all South African-based companies,” says Krohn. “Compared to other markets, there are relatively few major international insurance groups.”

There are 80 different non-life insurers in the market, of which 30 are standard non-life insurance companies. The remainder, says Krohn, are cell captive insurers, captives and niche insurers. The concept of cell captive insurers was developed in South Africa but is now used in Bermuda and other markets, says Krohn. “Rather than setting up your own captive insurance company, you’re basically buying a cell within a bigger insurer and that way you have simplified reporting requirements,” she explains. “There are also different capital requirements because you’re piggybacking on  the bigger insurer that you are affiliated with.” According to Krohn, cell captives accounted for nearly 11.4% of the total gross written premium in 2010.

Insurance regulations in South Africa are monitored by the Financial Services Board (FSB), which was established in 1990 by the Financial Services Board Act, No. 97. The FSB has issued a number of regulations since 2005, which have caused challenges for the industry. For example the Financial, Advisory and Intermediary Services Act of 2002, regulates all insurance intermediaries and is amended nearly every year, according to Krohn. The amendments deal with “conflict of interest, how to deal with additional services that the broker is providing for the policy holder or the insurer, what fees and commissions can be charged, and so on.  Compliance increasingly becomes an issue and many smaller brokers and insurers struggle with increasing costs in a very competitive market,” says Krohn.

An increasing awareness of consumer rights is also a feature of the fast changing market. A number of laws have become effective over the last few years.  Krohn says one of the significant pieces of legislation that will affect the market is the Companies Act of 2008, which has introduced class actions into South African law. The Consumer Protection Act of 2008 is also important, as it is expected to increase product liability exposure.

Non-admitted insurance is not permitted in South Africa. The Short-Term Insurance Act of 1998 says that South African insurance business can only be placed by a licensed broker within South Africa. As there are several large mining companies and other international corporations with large risks operating in South Africa, the country wants to avoid premium leaving the country if it can be covered in the local market. In order for a South African risk to be placed abroad, a South African broker would need to apply for exemption. The South African Insurance Association runs a very detailed, web-based system for brokers to deal with placing risk abroad. Local brokers must apply to do this 30 days in advance of when she needs the cover. The Insurance Association and the FSB then review the risk and either approve or deny the request. “It is one of the most regulated and also one of the easiest [systems], because once you follow that process, there is a good chance that you get the exemption,” says Krohn. “In most countries you actually have quite a bit of a grey area where it’s not quite clear [if you are able to place the risk internationally].”

The South African broker segment has seen a lot of activity recently. The two major South African-based brokers with the largest market shares, Alexander Forbes and Glen Rand MIB, have both recently been acquired. In April 2011, Aon acquired Glen Rand MIB and Marsh took over Alexander Forbes in August of that same year. “How that will affect the market, nobody knows yet,” she says. “I was really surprised [the FSB] let it happen.” Brokers are the main distribution channel in South Africa, with over eleven thousand registered entities, and, according to Krohn, there are more than 40 large brokerages active in the market.

For the report on Angola, click here. For the report on Kenya, click here. For the report on Nigeria, click here.

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Insurance Snapshot – South Africa 

  • 80 non-life insurers, including cell captives, captives and niche insurers.
  • US $7.28 billion in non-life market premium in 2010
  • Examples of mandatory coverages for businesses: workers’ compensation and motor third-party liability (both of which are state programs), vessel owners against oil pollution.

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Copyright 2012 Rogers Publishing Ltd. This article first appeared in the July/August 2012 edition of Canadian Insurance Top Broker magazine.

Transcontinental Media G.P.