Opinion by Anton Roux, CEO of Aon Sub-Sahara Africa & South Africa

[Nov 2014]: Risks which now appear high on many organisations’ agendas barely existed ten years ago. The breadth and variety of risks businesses face today requires them to mitigate against a wider range of challenges than ever before, ranging from white-collar crime, to terrorism and political instability, through to cybercrime.

In today’s globally interdependent environment, risks are no longer isolated by industry or geography. A perfect example is the current Ebola outbreak that started in February 2014 in West Africa with 10 000 reported cases of infection as at end Oct 2014. It shows how a seemingly local problem can spiral into a worldwide crisis that has significant implications for multinational and Africa-based businesses in terms of their risk management strategies, business continuity plans, travel risk and decisions on where to invest their capital.

The Ebola outbreak is having far reaching consequences from both an economic and socio-economic perspective. Industries that are particularly hard-hit by the Ebola outbreak are aviation, hospitality, public entities and higher education, among others, while the healthcare industry in particular faces a unique and augmented set of risk exposures.

The ripple effect of the Ebola outbreak is yet to be quantified, but as the crisis intensifies it becomes clear that it holds a major risk not only for the African continent, but for all the trading partners of countries affected by Ebola. Now is certainly not the time to wait and see ‘if’ Ebola spreads to other countries, including those beyond the Africa continent – indeed we have already seen reported cases in the US and UK. As more and more countries close their borders to travellers from infected areas, we need to be pro-active in our approach by implementing measures that will actively manage Ebola-related travel exposures in the form of crisis communication checklists, in addition to monitoring environmental workforce exposures.

Terrorism

Another worrying risk that is plaguing the African continent is that of terrorism and the linked kidnap for ransom and extortion incidents, especially in East and West Africa. Radical terrorist groups such as Boko Haram, Al-Qaeda, Al-Shabaab and more recently ISIS are serious threats to stability and foreign investment. The shocking kidnap for ransom and extortion incidents in 2014 have refocused global attention on what is a terrifying, often terrorist-linked practice of raising funds for arms or political gain.

Emerging markets which are experiencing significant growth and foreign business activity provide fertile ground for such incidents. Kidnap patterns in Africa particularly show that expats from international companies and the personnel of international aid organisations are likely victims due to the high profile and perceived wealth of the company they work for. But even the South Africa environment with its perceived low levels of law enforcement is conducive to the kidnapping of professionals. Every corporation with cross-border operations must protect themselves and their staff against the risk of kidnap, extortion, detention and hijack.

The modus operandi of kidnappers are also constantly shifting. Some insurers and negotiators have reported that “express” kidnappings are on the rise – unlike the more protracted cases of some piracy attacks, these involve fast, targeted grabs with shorter periods of detention and smaller ransoms. Other negotiators reported that their most serious cases have been more protracted and the kidnappers more patient.

While having the financial security to manage such an incident is paramount, insurance alone does not reduce the chance of being kidnapped. Prevention and pre-emptive risk management has to be the first port of call including reducing vulnerability to attack and comprehensive training for personnel who travel to high risk locations. For any business operating in these high risk operations, managing the risks of KRE has to be a top agenda item.

Risks at home

The growing risks in our own backyard are increasing in frequency, complexity and voracity. Volatility is certainly here to stay with ongoing labour action and disputes, political upheaval, reputational crises across both corporate and government sectors, service delivery protests and crime statistics which increased significantly in almost all areas. Added to this, market and currency volatility along with a dismal growth outlook are turning the screws in for business and consumers alike.

Of great concern to all is the increasingly precarious electricity supply and the potential for a major collapse of our grid is not all that far-fetched given our most recent challenges, exacerbated by ailing infrastructure and delays in bringing more capacity online, which could take a number of years before the electricity grid becomes stable. Volatility is something that South Africa will face for a number of years and businesses will need to find working solutions to cope within such an environment.

During the latter part of 2013 and the beginning of 2014 we also experienced a number of severe hail storms in the country and these have impacted on claims ratios of all South African insurers. A hail storm in peak traffic in and around Johannesburg may be the single largest claims event in South Africa.

Industry regulation

From an insurance industry perspective, one of the biggest indicators for 2015 is the FSB’s Retail Distribution Review (RDR) initiative that is backed by six principles in the Treating Customers Fairly framework (TCF). The initiative aims to promote appropriate, affordable and fair advice and intermediary services, that also strives to support a sustainable business model for financial advice. While it will fundamentally change the way in which the insurance industry operates, we remain committed to providing our customers with the best advice and intermediary services the industry has to offer.

2014 has been a rocky road with many misinterpretations of what RDR will signify and for many it was viewed as the end of independent advice. From an Aon perspective, value to the consumer is at the heart of the intermediary model and is entrenched in the industry code of conduct. The intermediary value proposition is as strong as ever and the majority of the insuring public will continue to recognise this as the industry evolves. In this regard the release of the FSB’s RDR discussion paper is heavily anticipated, and the industry remains committed to engaging positively to ensure an appropriate, affordable, fair and sustainable model for advice and intermediary services that are in line with consumer protection.

There are many factors at play that will fundamentally change the risk landscape as we know it within the next three to five years. Regulation, morphing distribution models, the rapid pace of technology innovation and an increasingly sophisticated insurance consumer, coupled with evolving business risks are all culminating to disrupt the industry as we know it.

The insurance industry plays a vital role in promoting global economic growth and as a result we need to utilise the data and technology that we have at our disposal, to evolve faster than the mounting array of risks that are facing not only our business today, but that of our clients.

In this regard, Aon has been at the forefront of investing in data and analytics which allows us to get into predictive technology space. Essentially, this kind of data and analytical capability allows us to de-risk our business to a large extent, and keep our focus on our clients, to meet their needs and exceed expectations. It also means that brokerages without the capital to invest in innovation across data and technology are in a tight spot. Competing in such a rapidly changing environment, especially where so much of what our business does relies on ongoing investment in innovation and data analytics capability, requires lots of capital. The bottom line is all businesses, irrespective of size, will be challenged to compete against new and disruptive players in the market place who are going to turn distribution on its head. Which is why taking steps, well in advance to innovate and reinvent your business in anticipation of disruptive change, will be the only key to survival.