The 2009/2010 year under review has come to an end with signs of the global credit crunch easing and the South African economy appearing to be lifting slowly out of the recession that we have experienced ever since the collapse of Lehman Brothers in September 2008. It would be reassuring to think that the global crisis is over. However, the worries about sovereign debt in mainly Euro-zone countries remain a black cloud on the global economic horizon.
These concerns need to be dealt with by way of a credible bailout loan package for the countries that investors are worried over, failing which, the global credit crisis may not yet be over, as there appears to be considerable investor uncertainty about the whole European Union, which is putting the currency under significant pressure. Some commentators are even predicting the demise of the Euro. Any continuing uncertainty would clearly have economic consequences for South Africa and delay economic recovery in this country, despite the recent favourable economic news and the largely beneficial impact of the 2010 FIFA World Cup.
Let us hope that the financial regulators and central banks around the world will continue to work together to deal with this major confidence crisis in the European countries so that the recovery that has taken place thus far in the global economy will have laid a real foundation for our economic future. If that does not happen, then we would have the real possibility of a "double-dip" recession that could have serious consequences.
The action taken by those responsible for global financial security will lay the foundation for the future of the economies around the world for the foreseeable future, which leads me on to say that the SAIA theme chosen for this year's review is "Laying Foundations for the Future" and it is a timely one as there are a number of initiatives that SAIA is dealing with right now that are vital for the future of the short-term insurance industry. How these issues are dealt with will set the scene for development in many areas of our industry for the next few years. Barry Scott, our CEO, and his able management team have set out the details in their sections of this review in the many areas that SAIA has been working on. I will, therefore, in my review deal with an overview of the areas that SAIA is handling and comment on those areas that I see as most important for the future of our industry, laying the foundation for this future in the years to come.
As a result of the strategic planning sessions that took place in 2006 and 2007, the SAIA Board established certain key strategic areas that needed to be dealt with by SAIA for the benefit of the industry. From the initial four strategic areas, which were originally identified, an additional two strategic areas were subsequently added to the list of priorities. However, since then three new important projects have been identified, which will need to be dealt with in the immediate future. I will confine my comments to the most important of these areas.
IMAGE AND REPUTATION
During the year, a fresh publicity campaign was launched in the press focusing on certain positive aspects for our customers, and we have had very good feedback on this campaign. In addition, and most importantly, the Code of Conduct that we have been operating under for many years has now been completely rewritten and we now have a very comprehensive code as a result of a great deal of work by management and members of the Code of Conduct Task Committee. As I have said, the new code is a very comprehensive document that goes way beyond the earlier codes that members have lived by, and I believe that this is an important step forward for SAIA.
There is no doubt that the new SAIA Code of Conduct is the mechanism through which self-regulation can now be effectively implemented by our members. I must stress that all of our members participated willingly and vigorously in the debate to finalise the code and to find the right balance between a code that seeks to take the relationship between insurers and their policy holders to new levels and is at the same time a practical one that our members can operate by. It is important to note that the code sets standards for ethical business and policy-holder relationships through voluntary self-regulation that will help to ensure that the spirit of the code is followed.
This code is also a living document that will be reviewed on a regular basis to see whether it can be improved from time to time. Since the code is essentially a document that our members all contributed towards and ultimately signed off on, it is a code that belongs to all our members, and it is already in place. I must congratulate Viviene Pearson and her team for managing this process in an extremely able and conscientious way and for having completed the task within a time-line that I did not think was possible.
The issue of Motor Insurance was, somewhat surprisingly, only added to our list of key strategic areas in the latter half of 2008. Since then we have developed a strategy that was adopted by the SAIA Board earlier this year and which seeks to get to grips with the causes of the problems that we are experiencing with road safety in South Africa, leading to extremely high claims for our members.
The statistics are reasonably well known and in my opinion totally shocking. At present, approximately 40 people a day are being killed on our roads which means that the annual figure is 14 000. Of that number approximately one-third are pedestrians and this is not surprising when the experts tell us that a car moving at 70 kilometres per hour has the energy equivalent of 40 bullets. If a pedestrian is hit by a car doing 70 kilometres per hour, death is a near certainty.
This statistic alone does not tell the story of the much greater numbers that are left permanently maimed or seriously injured, and the huge cost that this is to the country. This class of business for SAIA members is the largest class of business and more than half of all the claims paid out by the industry relate to motor claims. The SAIA Board and all our members, which write motor insurance, are hoping that the development of our strategy and our intention to work with other Governmental and non-Governmental Associations that are trying to assist in the reduction of the present carnage on our roads will soon start to have a positive effect. In my opinion, it is the most important area that we are dealing with and we must make a difference, not only for our members and policy-holders, but also for the whole of South Africa. Because of the importance of this strategic area, Viviene Pearson was recently appointed SAIA motor manager, and we wish her well in this vital task. She is certainly passionate about making a difference on our roads.
LEGISLATION AND REGULATION
Last year I reported that the regulations under the Insurance Laws Amendment Act of 2008 had still not been finalised although they were being awaited. During the year under review a great deal of work has been done on those regulations by the Legislation and Regulations Committee of the Board, managed by Refilwe Moletsane, the Deputy CEO of SAIA. However, the regulations under the Insurance Laws Amendment Act, although having been thoroughly debated by the sub-Committee, have still not been generally released for comment. So this process still has a long way to go before completion. The same position also applies to the regulations on the medical schemes’ demarcation where delays have taken place in the consultative process between the FSB and the National Treasury.
Both of these areas are vitally important for our members, so we are anxious to further the negotiations so that the consequences can be understood by the industry and then dealt with. Karen Naidoo, our legal manager who joined us during the year, will now have the responsibility of dealing with these issues.
This area of the our activities will be an extremely busy one during this year but the SAIA Management and our ever-willing committee members will be able to handle the task.
SOLVENCY ASSESSMENT AND MANAGEMENT
Towards the end of last year, the FSB informed us that it proposed to develop new solvency rules based on the principles of the Solvency II Directive adopted by the European Parliament sometime ago. The FSB has called this project the Solvency Assessment and Management Initiative and has proposed to have the legislation in place by 1 January 2014. We have recently been informed that the process will also include rewriting the Insurance Act.
Clearly then, this project will be a massive one and will place considerable strain on our management and our members. For this reason, the SAIA Board has approved the appointment of a project manager who will be responsible for the project and we are hoping to make an appointment as soon as possible. The important issue regarding the solvency assessment and management project is that it will need to be adapted to South African conditions and will therefore involve complicated and difficult negotiations, as we do not believe that an EU directive can simply be foisted on the South African market without modification
There are a number of other issues that SAIA and its working committees are dealing with, including transformation, the South African pool for the insurance of nuclear risks, the position of reinsurers in the South African market, a new industry data sharing initiative and lastly but most importantly the area of systemic risk and environmental issues all of which we are heavily involved in.
As can be seen by this brief overview, there is a massive amount of work that will pose a real challenge for me, the SAIA Board, our management and all of our members who give unstintingly of their time and expertise in order to ensure that our voice is heard by the regulator and other Government departments. As I have said, there is a very big task ahead to deal with these various issues but I believe the foundations have been laid and we look forward to the challenge that faces us.
SAIA Board: Chairperson