African insurers lack credible data to make informed underwriting decisions – Allianz CEO

Delphine Maïdou, CEO, Allianz Global Corporate & Specialty (AGCS) Africa in this interview questions regarding business risks in Africa through Africa CEO Forum’s #AskDelphine campaign help recently shared her thoughts on challenges facing the African insurance market and opportunities. Excerpts:

How do we prevent and limit health impact on country risk when it is often linked to individual behaviour?

This can be done through public-private awareness and education campaigns.  At a wider scale, pandemics which have a dramatic effect should also be managed. The Ebola crisis cost Liberia, Sierra Leone and Guinea 2.3 billion US dollars in Gross Domestic Product loss. Insurance and financing mechanisms such as the pandemic emergency facility are crucial to the economic recovery of developing countries.With regards to pandemics businesses need to understand that the financial loss as a result of a pandemic crisis may not be automatically covered by their current insurance policy. As such they need to assess their risk and have contingency plans in place to minimize the impact.

What are some of the greatest challenges that insurers are facing and how are they dealing with them?

As insurers, the greatest challenge we see at the moment in Africa is lack of credible and reliable data to make informed underwriting decisions on whether to take on a risk. The insurance industry in Africa just hasn’t historically collected and or kept the data.  As an example as insurers in Africa we are not able to have a view on the historical insurance loss of a particular industry segment which if we did would allow us to price the risk accordingly.

On a wider scale, the skills shortage continues to remain a challenge as the diaspora remains outside the continent and we are not able to up-skill the youth that are on the continent fast enough to meet demand for specialist skills. Some of these challenges are not endemic to Africa alone. There are no quick fixes. AGCS Africa has adopted a long term view on these challenges as we are committed to the continent. We are working closely with brokers, risk managers, regulators, insurance institutes and associations and other stakeholders within the continent to create awareness about the value and purpose of business and industrial insurance.

How can the local private sector turn Africa business risks into opportunities?

Each business risk requires a different response. So we would like to focus on two in particular that we reported on in the Allianz Risk Barometer 2016.Power Blackouts: with a combined population of 800 million, Sub-Saharan Africa generates roughly the same amount of power at 70000 megawatts as Spain with a population of 45 million. The expansion of power networks can be achieved by ensuring that existing infrastructure is better managed, improved and secured while the new infrastructure is built speedily to ensure that the region maximizes on its current and future economic growth opportunities. The infrastructure needs adequate risk management and risk transfer solutions to avoid any potential losses as a result of sudden unforeseen and accidental events.

Cyber incidents are also at the top of business risks for African companies. Insurance can only be part of the solution, with a comprehensive risk management approach being the foundation for cyber defense. Once you have purchased cyber insurance, it does not mean that you can ignore IT security; on the opposite, certain standards of IT security are a prerequisite to get insurance. The technological, operational and insurance aspects of cyber risk management go hand in hand. Cyber risk management is too complex to be the preserve of a single department such as IT, so AGCS recommends a ‘think-tank’ approach to tackling risk whereby different stakeholders from across the business collaborate to share knowledge. In both challenges the private sector can partner with government and business to build and maintain power and IT infrastructure.

We recently signed a big deal in Benin. The country will be having presidential elections soon. What kind of insurance product can we get to protect our deal?

The need to protect assets and employees, whilst also adequately planning for business continuity and operations is vital. Businesses may consider buying political risk and/or political violence coverage.

Which barometers can businesses use to assess business risks accurately?

Each company has risks that come with the type of business they are in.  A risk to your business is one that would have the greatest impact on your bottom line and your ability to stay in business. For example, for a telecommunications company it could be a cyber-incident that affects their systems, for the film industry it could be the loss of production because of the sickness or death of an actor in the middle of the production, for an oil company it could be an explosion of a platform. Regarding overall trends in business risks, the annual Allianz Risk Barometer is a good source of information. The barometer identifies top risks for 2016 and beyond, based on the responses of more than 800 risk experts from 40+ countries.

What can companies do to set up good management policies in risky territories?

The right people and the right policies. Policies on their own are not sustainable without ethical and educated people who run the business. This applies in both low and high risk territories.  Businesses should consider liability and financial lines insurance solutions to protect their companies from pure financial losses through products such as Directors and Officers Liability (D&O) and Management liability insurance.

It is important for businesses to have robust business continuity plans and resiliency to create systems of prevention and recovery to deal with potential threats to a company.

Which strategies can companies employ to counteract Africa’s economic risks?

Diversification – both in geography as well as product and services. Doing business in only one African country and only offering one product may leave your company in a more vulnerable position. However, trade credit insurance is an excellent tool that assists companies with regards to what markets are safe to trade in, and at the same time enabling businesses to grow their topline while protecting their bottom line.

Which solutions can limit risks for multinational companies selling goods in Africa without investing in local representation?

Companies doing business in Africa are encouraged to also invest in the socio-economic development of continent. Knowledge and understanding of a market can only be achieved once you invest in it. This also minimizes potential risks in the future.

Are there other solutions apart from documentary credit or advance payment when it comes to payment guarantees?

Trade credit insurance allows companies to be competitive by selling on credit terms and at the same time guarantees their payment. Euler Hermes is the global leader in trade credit insurance.

What can companies do to tackle the lack of infrastructure such as roads, import duty and taxes etc, and development within certain countries?

One of Africa’s major challenges remains lack of adequate infrastructure to facilitate trade. The continent’s growth depends on closing its vast infrastructure and skills gap, which needs innovative credit and investment solutions facilitated by public private partnerships through a clear policy and legal framework. But for these solutions to work, they will require equally appropriate risk management and risk transfer solutions. Therefore businesses should consider choosing countries that have competitive economies, which enable business to do trade with ease. It’s also important to choose regions that have a well-developed infrastructure.