In this virtual meeting, the Standing Committee on Appropriations was briefed by the South African Special Risks Insurance Association (SASRIA) on the 2022 Second Adjustment Appropriations Bill.
Members were informed that due to the destruction of commercial properties during the July unrest in 2021, SASRIA had received a sharp increase in the number of claims, from 2976 in 2020/2021, valued at R778 million, to 20 966 in 2021/2022, valued at R38 billion. The sharp increase placed significant pressure on SASRIA, with its solvency capital requirement cover ratio projected to be at 68% for this financial year and 150% in March 2023.
SASRIA further indicated that the R22 billion it received from National Treasury would be used to cover claims from the July unrest and improve its solvency problem. If the entity maintained its loss ratio between 35% and 45%, it would be able to replenish its reserves within the next five to seven years, allowing SASRIA to return to where it was before the unrest in July.
The Committee raised concerns regarding SASRIA’s readiness for the unrest and requested that it strengthen its modelling measures, so that in the future it is better prepared for such a sequence of events. While noting those remarks, officials from SASRIA called for all government departments, particularly those part of the Security Cluster, to be better prepared.
In his closing remarks, the Committee Chairperson urged that transformation remain an objective of SASRIA’s Board and that it should form part of its key performance indicators. He requested that SASRIA take the Committee through its transformation strategy in the next engagement. Furthermore, the government, he added, should be at the forefront of transformation in the financial sector.
The Chairperson mentioned that the Committee would be briefed by SASRIA on the 2022 Second Adjustment Appropriations Bill (SAAB).
SASRIA briefing on the SAAB
Mr Mpumi Tyikwe, Chief Executive Officer (CEO), SASRIA, stated that SASRIA had received a sharp increase in the number of claims from 2976 in 2020/2021, valued at R778 million, to 20 996 in 2021/2022, valued at R38 billion. This was mainly due to the July unrest in 2021, as several commercial properties were damaged or destroyed. The sharp increase placed significant pressure on SASRIA, with its solvency capital requirement cover ratio projected to be at 68% for this financial year and 150% in March 2023. In addition, the entity expects to register a loss of more than R26 billion by the end of the current financial year.
SASRIA was concerned about its reinsurance premium and lack of reinsurance capacity. However, it was pleased that it does not have liquidity issues, as it received a cash injection and had an increase in premium flows.
He indicated that the R22 billion Sasria received from National Treasury would be used to cover claims from the July unrest and improve its solvency problem. If the entity maintained its loss ratio between 35% and 45%, it would be able to replenish its reserves within the next five to seven years, allowing SASRIA to return to where it was before the unrest in July.
He informed Members of SASRIA’s two flagship programmes, which are the South African Actuaries Development Programme (SAADP) and the Maths and Science Revision Programme. Since its inception in 2003, the SAADP has produced 531 Actuarial Science graduates. Out of these, 75 have qualified as Actuaries, with 100 more set to qualify in the next two years.
Ms Kgodiso Mokonyane, Deputy Chair, SASRIA, said that SASRIA appreciates the support it has received from other government stakeholders, following the events of the July unrest. As such events are difficult to model, she hoped that the Committee would understand that the entity could not foresee an event of that magnitude occurring.
Ms M Dikgale (ANC) asked a series of questions. One, she asked why SASRIA has decided not to improve its premium.
Two, she asked if it conducts outreach programmes in the rural areas, where it informs communities of its programmes.
Three, she asked if SASRIA only serves people living in urban areas.
Four, she asked who SASRIA collects premiums from; how much it earns per annum; and how much is spent on paying out claims per annum.
Mr O Mathafa (ANC) asked if SASRIA’s current funding model is sufficient to carry out its operations. Further, besides utilising government, he asked how else the entity could generate or obtain funding, particularly when the country is faced with extreme events of unrest.
He highlighted that the presentation had not given him comfort that SASRIA would be ready for another period of unrest. As such, he asked how responsive it would be if such an event were to re-occur.
Mr X Qayiso (ANC), noting the 150% increase in SASRIA’s solvency liquidity requirement, argued that as a well-managed and performing State-Owned Entity (SOE), there should not be a reason for the government not to provide the entity with additional funds. Particularly, he added, as poor-performing SOEs like Eskom are consistently provided bailouts.
He asked if SASRIA had thought of how it could broaden its insurance options so that gradually, more small businesses and hawkers have access to its services.
Ms D Peters (ANC) was concerned by SASRIA’s acknowledgement that it does not provide life cover for workers. Further, as some workers are not covered by the unemployment insurance fund (UIF), while others are not registered as workers, she asked how SASRIA deals with businesses that have made sizable claims but have not returned to their operations.
She asked how SASRIA ensures that learners from small towns and townships get value from its Maths and Science teaching programme.
She then asked for a breakdown of the number of beneficiaries in SASRIA’s portfolio by location, industry, race and gender. Additionally, she asked how many small businesses are insured by SASRIA.
Mr Z Mlenzena (ANC) asked if SASRIA is able to keep track of the funds it has provided to businesses that made claims. Previously, after a payout, the entity would make an assessment of how the funds are used. There have been allegations that after receiving a claim, some businesses decide to move from the area of operations, due to security concerns, to another area either within the country or outside. He found this to be wrong, as he believes that businesses also need to serve the surrounding communities. As such, he asked if SASRIA is able to detect if a business has moved from its area of operations, following a payout.
Referring to SASRIA’s preamble, he said that the entity was designed as a scheme to protect the Apartheid regime. He asked if the entity has a clear transformation agenda or if it is perpetuating the aims of the Apartheid regime.
Mr Qayiso asked why highly-skilled staff had been leaving the organisation.
The Chairperson asked a series of questions. One, he asked why SASRIA had prepared for such an event.
Two, he asked why SASRIA believed it was not adequately insured.
Three, he asked what SASRIA’s strategy is to ensure that all taxpayers have access to its services, as it does not cover most businesses in townships and rural areas.
Four, he asked how it fared in its other ratios.
Five, he asked how many claims paid out were legitimate.
Six, he asked when SASRIA realised that its premiums did not reach it; why this had occurred; and what the entity was doing about it.
Mr Tyikwe clarified that SASRIA did increase its premiums in February 2020. On average, it does so by 38%. In the incoming year, SASRIA expects a premium growth of 40%. This, he said, will be presented in the entity’s corporate plan, which is to be tabled in Parliament.
Describing its model, he said that SASRIA works with insurance brokers to distribute (or sell) insurance to companies. Thus there are three parties involved, SASRIA, the insurance broker and an insurance company. While SASRIA does have a presence in the rural areas, it is marginal, as there is no presence of insurance brokers.
Still explaining the model, he mentioned that SASRIA does not advertise its services much, as it pays the brokers commission for each transaction completed. However, the entity is looking to change its strategy and recently has done advertisements through media platforms, such as radio stations. This new strategy, he added, will also ensure that people are able to buy insurance directly from SASRIA.
On reaching out to rural communities, he stated that SASRIA is working on providing its educational programmes on an online platform, so that it has a wider reach. To achieve this, SASRIA plans to partner with telecommunication companies, as they have a footprint in the rural areas.
Regarding the July unrest, he indicated that such events are difficult to model, hence the private sector refuses to insure this area. As a consequence, the state has to act as the insurer. Having said that, he highlighted that for 42 years the institution has been able to meet its obligations, pay its policyholders, and assist businesses resume operations.
Still touching on the unrest, he said that in its scenario planning – which simulates a possible event, and verifies whether the entity will be able to respond it – SASRIA was unable to anticipate the poor response by the country’s security cluster, which allowed for the violence and unrest to play out for a longer period than it should have. SASRIA, he added, would have been able, within its budget, to sufficiently deal with the claims, had they amounted to R17 billion.
He confirmed that the entity is preparing for an event of that magnitude and it plans to engage with National Treasury and other government departments on its plans.
On the question of life cover, he indicated that the SASRIA Act 134 of 1998 does not currently prescribe that the entity extends to life cover. By design, SASRIA is mandated to only provide cover for commercial property. He explained that employers generally take out group life cover for their employees, so if an employee is injured at work, there are other measures for him/her to get cover.
Regarding the number of small businesses insured by SASRIA, he mentioned that of the claims below R1 million, 17 000 of them were from small businesses. Businesses in the affected township malls also formed part of this number. For a client to receive a claim for SASRIA, he/she must pay a premium. However, as some business owners did not have insurance, SASRIA was unable to pay them. Although, the Department of Trade, Industry and Competition (DTIC) did have a programme where it provided assistance to uninsured small businesses.
He committed to providing a detailed list of companies under SASRIA’s portfolio.
He underlined the importance of differentiating between a client and beneficiary. Further, to prevent a loss of trust and confidence in South Africa’s economic infrastructure, SASRIA is obliged to fulfil its claims.
Touching on SASRIA expanding its insurance options, he indicated that the entity is preparing to introduce an insurance product for informal business owners, with the premium priced at R30 per month. He explained that if the business-owner experiences losses from labour or general unrest, he/she will be paid a claim. A mobile application will also be created for those with smartphones to use.
Regarding the staff resignations, he clarified that the staff turnover is less than 10%. Those who leave the entity, do so for personal reasons.
Referring to the monitoring of businesses after payouts, he mentioned that as part of its strategy with the July unrest, SASRIA insisted on a reinstatement with certain clients, as such, it rebuilt the properties back for the businesses, rather than providing cash.
He believes that SASRIA has been transformed in both its leadership composition and its outlook on South African (SA) society. Though, he admitted that SASRIA can do more to contribute to transformation and this will require a change in its mandate. SASRIA has established a programme that looks to develop more black insurance brokers, particularly in rural areas. He underlined that it is by default and not design that the entity benefits urban areas more, as most commercial properties are based there.
On the July unrest claims, he stated that operationally, SASRIA could absorb all of the claims on an operational level but not financially, as the claims amounted to R37 billion, whereas it could only absorb R17 billion.
He informed Members that SASRIA is collaborating with private-sector partners to investigate why certain areas are prone to unrest, while others are not. Management will also utilise intelligence shared by the security cluster.
Regarding the ratios, he indicated that SASRIA also looks at its liquidity ratio and at the moment, it does have enough cash for claims that may arise.
He explained that as SASRIA keeps expenses below 8% of its premium, it is able to use those funds for its operational expenses. As such, the appropriated funds will not be used for this purpose.
On the fraudulent claims, he said that the internal audit does a sampling of the claims to ensure no fraudulent claims are processed. If a claimant is alleged to be involved in corrupt activities, SASRIA will first look into those allegations prior to processing and approving the claim.
Referring to the premium leakage, he mentioned that SASRIA has not identified how it occurred but it has a proposed plan, which includes verifying whether someone selling insurance is registered and has a financial stability plan (FSP). He added that SASRIA does not deal with other distribution channels, like underwriting agencies.
Ms Mokonyane, referring to SASRIA’s Corporate Social Responsibility (CSR), mentioned that the entity has ongoing programmes in rural areas and townships, which includes the erection of toilets in schools. It also runs the SA Actuaries Programme, which also looks at risks faced by SA insurance companies. Thus, there has been an effort to have all business-owners as beneficiaries of SASRIA.
Touching on SASRIA’s funding model, she said that the agency would continue to rely on government for funding, as the private sector does not want to insure this area. SASRIA, she added, will have discussions with National Treasury on its funding model.
In the event of further unrest, she called for all state institutions, particularly the Security Cluster, to contain the violence.
The Chairperson, citing the lack of transformation in the financial sector, asked what role SASRIA plays in ensuring that it occurs.
Ms Dikgale suggested that SASRIA communicate with the House of Traditional Leaders, when it embarks on its programme to develop black insurers.
Ms Mokonyane said that SASRIA must reflect its shareholder’s ambitions, wincludeludes creating an inclusive and prosperous society. National Treasury selects a board of directors that reflects the demographics of the country, to ensure gender and racial (amongst others) representation. This, she added, allows for SASRIA to have debates at the board level and to operationalise them.
As part of its transformation efforts, SASRIA reviewed the Financial Sector Bill and is also looking at how to regulate the insurance and financial sector in SA. During this process, it recommended that transformation should form a part of the regulations, to ensure all insurance companies place transformation at the centre of what they do. This, SASRIA believes, will allow for it to enforce transformation in insurance companies.
Still explaining SASRIA’s transformation efforts, she indicated that the Board has noted that there are critical skills in the sector which are not transformed. The SAADP has been implemented to address this. Much of SASRIA’s reserves, which were built up during the Apartheid years, were used to create a group of black actuaries, who were expected to transform the sector.
She added that with its positive cash reserves, SASRIA plans to allocate funds in support of black asset managers. It also provides funds to the asset managers to invest on its behalf.
She appreciated the recommendation that the entity communicate with traditional leaders.
Mr Tyikwe said that the Board is deliberate in ensuring transformation in the sector and plans have been put in place in this regard.
The Chairperson urged that transformation remain an objective of the Board and that it should form part of its key performance indicators. He requested that SASRIA take the Committee through its transformation strategy in the next engagement. Government, he added, should be at the forefront of transformation in the financial sector.
He appreciated the input from the SASRIA officials and wished the CEO well in his position.
Consideration and adoption of 4 May 2022 minutes
The Chairperson requested a mover for the adoption of the minutes
Mr Mathafa moved for the adoption of the minutes.
Mr Qayiso seconded the adoption of the minutes.
The meeting was adjourned.
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