1. 1 THE INSURANCE AMENDMENT BILL, 2003 PRESENTATION TO THE PORTFOLIO COMMITTEE ON FINANCE 27 JANUARY 2003 SAMANTHA ANDERSON DIRECTOR OF FINANCIAL MARKETS NATIONAL TREASURY

2. 2 THE INSURANCE AMENDMENT BILL, 2003 OVERVIEW 1.HISTORY OF INSURANCE 2.ECONOMIC CONTEXT OF THE LONG-TERM AND SHORT-TERM INSURANCE INDUSTRIES 3.PROFILE OF SHORT-TERM INDUSTRY 4.PROFILE OF LONG-TERM INDUSTRY 5.INVESTOR PROTECTION

3. 3 HISTORY OF INSURANCE  PUBLIC VERSUS PRIVATE INSURANCE  MARITIME INSURANCE IS THE OLDEST FORM OF PRIVATE INSURANCE 1200 1435 1762 1907 1200 1435 1762 1907 First insurance First code First mutual Car insurance against robbery, of insurance life insurance first offered in plunder (theft) & laws - company formed America (Ford capture for ransom Barcelona in London started in 1903) Earliest record Great Fire Concept of Mutual liability of life insurance - of London in “preferred risk” insurance first was for the lives 1666 & 1st fire intro’ed allowing offered for damage of pregnant wives insurance company lower rates to property 1430 1680 1835 1921 1430 1680 1835 1921

4. 4 HISTORY OF INSURANCE  The first insurance legislation in South Africa was introduced in 1891 in the Cape. Prior to 1910 (the Union of SA) the Colonies of Natal and the Cape and the Boer Republics of the Free State and the Transvaal all had their own legislation.  First national insurance legislation was passed by Parliament in 1923  This legislation was amended on an annual basis until in 1998 the two new insurance acts were passed by Parliament.

5. 5 ECONOMIC CONTEXT OF THE INSURANCE INDUSRTY IN SOUTH AFRICA CONTRIBUTION TO SOUTH AFRICA’S GDP (LONG AND SHORT) Source : FSB

6. 6 ECONOMIC CONTEXT OF THE INSURANCE INDUSRTY IN SOUTH AFRICA CONTRIBUTION TO EMPLOYMENT (LONG AND SHORT) Source : FSB

7. 7 ECONOMIC CONTEXT OF THE INSURANCE INDUSRTY IN SOUTH AFRICA MARKET CAPITALISATION ON THE JSE (LONG AND SHORT) Source : FSB

8. 8 ECONOMIC CONTEXT OF THE INSURANCE INDUSRTY IN SOUTH AFRICA AVERAGE PERFORMANCE OF INSURANCE SECTOR Source : Bloombergs

9. 9 PROFILE OF SHORT-TERM INSURANCE INDUSTRY  WHO IS WHO IN THE INDUSTRY? In 2003 there are 88 registered S/T Insurers in South Africa and 7 reinsurers. Of those 88, 52 are members of SAIA. The number of S/T insurers is down from 107 in 1996. Since May 1996, 19 companies have either closed or are in run-off. This is due to a substantial amount of consolidation in the industry over the past 6-7 years.  PARTICIPATION BY FORIEGN INSURERS IN THE LOCAL MARKET Out of the 88 S/T insurers in SA, 16 are either wholly or partly foreign owned. Largest foreign ownership is German closely followed by UK ownership.

10. 10 PROFILE OF SHORT-TERM INSURANCE INDUSTRY Source : FSB FINANCIAL SUMMARY

11. 11 PROFILE OF SHORT-TERM INSURANCE INDUSTRY ANALYSIS OF GROSS PREMIUMS PER POLICY TYPE Source : FSB (2001)

12. 12 PROFILE OF SHORT-TERM INSURANCE INDUSTRY MOTOR VEHICLE COVER MOTOR VEHICLE COVER  34 % of gross premiums for the industry (largest source next to property that accounts for 28%).  The total number of cars licensed to drive on SA roads is 6 million, of which only 2 million (33%) have some form of insurance cover. In most developing countries 3rd Party cover is mandatory and where it is not, cover is usually as high as 90% of motor vehicles on the roads.  High accident rates and theft of motor vehicles in South Africa have been a source of losses for S/T insurers. Hijacking is one of the main areas of concern for S/T insurers and SAIA is working with the SAPS and Department of Safety and Security in an effort to reduce car hijacking.

13. 13 PROFILE OF SHORT-TERM INSURANCE INDUSTRY PROPERTY COVER PROPERTY COVER  28 % of gross premiums for the industry Residential and Commercial Residential and Commercial  All houses and other forms of property in South Africa that are financed i.e. mortgage bond holders have mandatory cover. It is not known what percentage of all houses or commercial properties in South Africa have some form of cover.  In 2001, SAIA in conjunction with the Vehicle Security Association (VESA), launched a project to establish standards for burglar bars and security gates. Testing of gates and bars has already commenced. In addition, SAIA is also involved in a similar initiative to establish minimum criteria for the installation of security systems (burglar alarms)

14. 14 PROFILE OF SHORT-TERM INSURANCE INDUSTRY TERRORISM

15. 15 PROFILE OF SHORT-TERM INSURANCE INDUSTRY TERRORISM Apart from the cover provided by SASRIA, there is very little cover for terrorist activity offered in South Africa. Apart from the cover provided by SASRIA, there is very little cover for terrorist activity offered in South Africa. The S/T industry is concerned about their inability to reinsure terrorist cover due to a worldwide retraction of private reinsurance for this. Governments have had to guarantee reinsurers in order for this cover to continue to exist. This may pose problems for South Africa in the future as foreign investors may be deterred from investing in a jurisdiction that cannot offer any terrorist cover. The S/T industry is concerned about their inability to reinsure terrorist cover due to a worldwide retraction of private reinsurance for this. Governments have had to guarantee reinsurers in order for this cover to continue to exist. This may pose problems for South Africa in the future as foreign investors may be deterred from investing in a jurisdiction that cannot offer any terrorist cover.

16. 16 PROFILE OF SHORT-TERM INSURANCE INDUSTRY OTHER LARGE RISKS The local insurance market is not large enough to absorb risks such as SAA, Koeberg and other large corporations such as mining houses etc. The local insurance market is not large enough to absorb risks such as SAA, Koeberg and other large corporations such as mining houses etc.FRAUD The S/T insurance industry worldwide has seen an increase in fraudulent claims in the past 5 years. The industry has recently launched a fraud hotline to try and reduce the incidence of fraud. The S/T insurance industry worldwide has seen an increase in fraudulent claims in the past 5 years. The industry has recently launched a fraud hotline to try and reduce the incidence of fraud. The number of the fraudline is 0800 25 26 27 or go to www.tip-offs.com to give an anonymous tip

17. 17 PROFILE OF THE LONG-TERM INSURANCE INDUSTRY  WHO IS WHO IN THE INDUSTRY? There are 67 registered L/T insurers and 6 registered L/T reinsurers. Of the 67 L/T insurers and 7 reinsurers, 36 are members of the LOA. The five largest companies are Old Mutual, Sanlam, Momentum, Liberty and Investec. These five companies contribute 65.14% of the total income of the L/T insurance industry. The five largest companies are Old Mutual, Sanlam, Momentum, Liberty and Investec. These five companies contribute 65.14% of the total income of the L/T insurance industry.  PARTICIPATION BY FORIEGN INSURERS IN THE LOCAL MARKET L/T reinsurers are all foreign owned. Old Mutual is considered a foreign company since its primary listing moved to London.

18. 18 PROFILE OF THE LONG-TERM INSURANCE INDUSTRY Source : FSB Old Mutual and Sanlam contribute Old Mutual and Sanlam contribute to more than half of South Africa’s to more than half of South Africa’s L/T insurance assets L/T insurance assets

19. 19 PROFILE OF THE LONG-TERM INSURANCE INDUSTRY Source : FSB (2001) MARKET SHARE BY BUSINESS TYPE Reinsurance

20. 20 PROFILE OF THE LONG-TERM INSURANCE INDUSTRY Source : FSB FINANCIAL SUMMARY

21. 21 Source : FSB NET PREMIUMS BY CLASS OF POLICIES (2001) PROFILE OF THE LONG-TERM INSURANCE INDUSTRY

22. 22 PROFILE OF THE LONG-TERM INSURANCE INDUSTRY Source : FSB NET PREMIUMS BY TYPE OF BUSINESS (2001)

23. 23 PROFILE OF THE LONG-TERM INSURANCE INDUSTRY Source : FSB COMPOSITION OF BENEFITS PAID (2001)

24. 24 Source : FSB INVESTOR PROTECTION POLICY SURRENDERS (L/T INSURANCE) (excl. pension fund and group life business)

25. 25 Source : FSB INVESTOR PROTECTION LAPSES (L/T INSURANCE) (excl. pension fund and group life business)

26. 26 INVESTOR PROTECTION LONG TERM INSURANCE OMBUD LONG TERM INSURANCE OMBUD  The Long-term Insurance Ombudsman functions under the auspices of a voluntary arrangement.  The ombudsman only considers complaints where the insurer involved has indicated that it considers itself bound by the rules of the industry arrangement. The ombudsman’s services are free. More than 75% of registered life insurers subscribe to the voluntary Long-term Ombudsman’s Scheme. However, if a more appropriate measure is applied, i.e. asset value, more than 98% subscribe to this scheme.  The number of new complaints submitted to the ombudsman increased by 25% during 2001 to 5 257 compared to 4 210 in 2000.  The ombudsman identified three major areas of complaints, namely communication/administration failure (944 cases), claims disallowed on account of policy terms not being met (945 cases) and alleged misselling (460 cases). This pattern is similar to previous years  The ombudsman identified three major areas of complaints, namely communication/administration failure (944 cases), claims disallowed on account of policy terms not being met (945 cases) and alleged misselling (460 cases). This pattern is similar to previous years.

27. 27 INVESTOR PROTECTION L/T INSURANCE COMPLAINTS TO THE FSB : 2000-2001 L/T INSURANCE COMPLAINTS TO THE FSB : 2000-2001 1071 complaints 1071 complaints were received 2000-01 were received 2000-01 85% of which were 85% of which were dealt with successfully dealt with successfully Source : FSB

28. 28 INVESTOR PROTECTION S/T INSURANCE COMPLAINTS TO THE FSB : 2000-2001 S/T INSURANCE COMPLAINTS TO THE FSB : 2000-2001 433 complaints 433 complaints were received 2000-01 were received 2000-01 82% of which were 82% of which were dealt with successfully dealt with successfully Source : FSB

29. 29 INVESTOR PROTECTION SHORT-TERM INSURANCE OMBUD SHORT-TERM INSURANCE OMBUD As is the case in the L/T industry, the S/T Ombud is entirely As is the case in the L/T industry, the S/T Ombud is entirely funded by the industry. funded by the industry. An insurer is debited a fee in respect of each complaint An insurer is debited a fee in respect of each complaint received. received. Insurers have no right to appeal a ruling by the Ombud. Insurers have no right to appeal a ruling by the Ombud. In 2000-02 the Ombud received between 20 and 50 In 2000-02 the Ombud received between 20 and 50 complaints per day totally 5000 complaints for the year. complaints per day totally 5000 complaints for the year. The success rate is 31% of complaints and in 2000-01 a The success rate is 31% of complaints and in 2000-01 a total amount of approx. R18 million was recovered from total amount of approx. R18 million was recovered from insurers. insurers.

30. 30 INVESTOR PROTECTION FAIS ACT, 2002 FAIS ACT, 2002 POLICY HOLDER PROTECTION RULES POLICY HOLDER PROTECTION RULES CONSUMER EDUCATION CONSUMER EDUCATION FINANCIAL SERVICES OMBUDS SCHEMES BILL FINANCIAL SERVICES OMBUDS SCHEMES BILL Source : FSB

31. 31 QUESTIONS?