In conversation with
Mr. Volker Von Widdern

FDI Spotlight: How have you as Constantia Insurance Group mitigated the various challenges in South Africa, especially the shift to digital?

Volker von Widdern: We think a lot about the trust between us and clients, especially with the significant shifts in our and other industries due to the switch to digital. In the context of the insurance industry, especially insurance services, the shifts are already playing out because of the digital age and electronic access to cover. I think the impact is seen on intermediaries first, especially in the commoditised area.

However, insurance companies are regulated and set up not to fail. Therefore I believe that it is very important to say that you are in a trusteeship role on behalf of policyholders and their premiums. The environment of insurance companies allow them to carefully buffer any volatility, due the structure of insurers, how they reserve and because they are obligated to report in a regulatory, government and actuarial sense. These companies try to measure their risk, as well as reinsure a lot of it, and the insurers themselves are well established.

An insurance company failing is a very rare event, due to the nature of the industry. A possible way in which that will happen is if the company far underprices it’s products, or has inadequate management systems.

At Constantia Insurance Group we have careful rules and regulations, and the business is set up with sustainably and robustness in mind. We are very strict in regulating ourselves in order to ensure that our products meet the needs of our clients, which includes our ability to afford pay outs; it also ensures that we adhere to the Insurance Act. There are very serious consequences to companies which do not adhere to regulations.

One thing you always have to consider, no matter what industry you are in, is the sustainability of your business and how to handle any market changes. For example, if you are in the motor vehicle or medical insurance sectors, you can calculate that you will spend a certain amount of claims every month. Sometimes you have to make the call and cancel that service, if it comes to that.

It is a tough call, but you need to be able to make it to survive.

Therefore, even with the fluctuations due to the digital world we live in, there is an extra layer of governance in the insurance business that requires more planning and preparation that ensures longevity. The greater degree of governance means a greater likelihood of sustainability.

In terms of development and implementation, what strategies have you had to adapt and what new strategies are you planning to adopt?

Volker von Widdern: We have a medical product that insures clients in our African footprint, and we are planning to broaden the product offering within the next year or two. Health is an area that will never diminish, which means that there are many opportunities.

People, whether individuals or companies, want to know that they have a quality provider when it comes to both healthcare and health insurance. They want to know that they will receive the best service, especially when a life threatening event occurs. Therefore there is a lot of room for creating or filling a niche market, which is what we look at.

The behaviour of insurance in a market is tied to the local market’s regulation and how each geography seeks to enhance capacity and capabilities locally.

One of the major shifts that I have seen is that it has been quite easy for international insurers to enter an African market and write business in various ways. While they were certainly providing the cover under the product they were writing, not much premium was left in the local market. Therefore you have these ongoing concerns that there is an externalisation of premium, lack of local employment, and high priced premiums, which extract profits out of the country. Even on the corporate side, the reinsurance premiums are quite high. The local insurance market does not grow and becomes a rolling stone that does not gather moss.

Forced local participation has been set through regulation in many African countries, which is something I strongly believe in. You should not be able to penetrate markets within a country unless you are willing to be a part of the country. Namibia, for example, has very strict regulation regarding any kind of premium leaving the country.

South Africa’s mining industry is a good example of this; while we have one of the biggest mining sectors in the world, the local insurance sector only carries about 5–10% of the mining risk and business. The fact is that the insurance industry is big enough for this sector, but South Africa externalises most of its premiums.

In simpler terms, what happens is that the smaller mining companies do not get access to appropriate protection, because of the inadequate retention of the mining premium. We need more participation and more penetration from both sides, because our insurance sector is big enough to write the risk and business. Currently we have many foreign insurance specialists who look after big mines, but they aren’t keen on the smaller ones.

A similar problem has developed in the medical malpractice area. A medical indemnity mutual – Medical Protection Society – was set up by a UK provider. Members pay a membership fee, and that is then used to cover malpractice settlements and defence costs. However, MPS took money out of the country and we have a difference in opinion with them as regards to the requirement to become a registered insurer in South Africa; it became clear that they were offering unlicensed insurance related benefits in South Africa.

In our opinion, they provide an insurable benefit for a consideration due to the protection they offer members under the membership fee. However, if you are in South Africa, our law says that if you indemnify someone for a consideration it is insurance – which makes us believe that MPS is not complying with local insurance Regulations.

As mentioned, MPS is taking money out of the country even though it was going through a South African administration office. The problem is that in the last five years the membership fees have gone up a multiple of 3 to 5 times and it has gotten to a point where we have a crisis within our specialist medical areas. Gynecologists and obstetricians, for example, used to pay R100 000 a year whereas they pay over R800 000 a year now.

This puts them out of business, because they cannot afford it, especially considering the fact that the price will go up to R1 million. Therefore, what is the benefit for the industry with these kinds of price increases?

With our entry into the market, we considered the key risk factors, in particular the contingency based litigation.

A lawsuit might demand damages of up to R40 million; personal injury lawyers are quite ruthless when it comes to attacks on doctors because their cases are well prepared.

We asked: why should a doctor become a litigation specialist when he or she is a clinical specialist? Our response is to analyse the litigation risk issues from the source, and let the doctor be good in his space, and get on with fixing the patient. If the doctor is at fault, let us just get on with fixing the patient without massive legal costs and unnecessary delays.

If you look at many litigation cases around cerebral palsy patients, lawyers generally focus on the alleged negligence being the child’s lack of oxygen during birth. However, in many cases there is a genetic aspect to the disease, which makes it a medical issue – not a legal one!
We need to drive more FDI into South Africa, and with insurance you can focus on areas which will stimulate this. The local medical environment is a good place to start and to focus on.

How are you using the digital sphere to bring down the cost curve of premiums and within the insurance arena?

Volker von Widdern: South African direct insurers in motor and household insurance are fairly generic, and it will become more so over the next few years. Within the next month or two we are launching an internet based product for clients. You can then customise your insurance according to your own habits. For example if you have three cars and only drive one, you can select or specify that ‘for cover’.

At the moment there is nothing like that in the market, and I do believe that it will improve the industry and help people.

At the other extreme, there is also opportunity in South Africa to offer insurance to the people living in shacks. Drones are perfect tools in this case; you firstly need to understand how people live in a group of shacks to assess their size and number of occupants, which can then be used to allocate a standard cover limit. The people themselves do not have to complete forms because the drones can do that for them, and you can charge them as little as R5 a month for cover on a community-wide basis.

Technology allows us to go above and beyond and put people first, which is what our insurance company seeks to do.