Life companies don’t pay much attention to the emotional context in which they operate. Insurance is a complex industry. It is about deeply personal and emotive issues, literally life and death, and the profoundly impersonal calculus of probability and risk. Those who run and regulate insurance companies tend to focus on the latter. But clients focus on the need to manage risks that could have enormous consequences for themselves and those they love.
Momentum saw the Ganas case in purely technical terms. The life policy that Nathan Ganas held was declared invalid by Momentum because he had not disclosed a material blood sugar problem that he was, according to them, aware of. This approach is quite normal all over the world.
The core philosophical precept to insurance is the legal “doctrine of utmost good faith”. This is an artefact of contract law. Most contracts do not work this way, applying instead the principle of “caveat emptor” in which the seller only needs to disclose what she is asked.
But an “utmost good faith” contract, in contrast, requires both sides to disclose every fact relevant to the contract. If they do not, particularly when the insurance company has been induced to provide the policy because the buyer had kept a material fact hidden, the contract is made invalid.
This makes a lot of sense in commercial insurance. If I want to insure a ship that that is travelling across the Atlantic, I should honestly disclose what that ship will be carrying. The insurer also has a duty to explain the contractual terms clearly, describing when it would or would not pay out.
If I have knowledge material to the nature of the risk and fail to disclose it, the contract is, in the legal terminology “avoided”. All premiums are repaid (unless there was active fraud by the client) and both parties continue as if the contract never existed. This is irrespective of what eventually happens to the ship during its voyage.
This approach is important because insurance is fundamentally about pooling risks. If one policyholder induces the insurer to take on risks they otherwise wouldn’t, it comes at the expense of all other policyholders because the financial position and risks of the pool have been weakened.
But in the life insurance market, things are different. Consumers approach the contact from a deeply emotional perspective in which they are trying to protect themselves and their loved ones from devastating risks. Had Momentum properly understood this, it would have approached the Ganas case differently.
Ganas died during a botched hijacking and violent crime is clearly a highly emotional issue for consumers. Momentum’s refusal to pay out seemed heartless, particularly because the nondisclosure by Ganas was unrelated to the cause of his death. Momentum’s treatment of the Ganas case was confirmed by the insurance ombudsman. He saw it the same way Momentum did — there was material nondisclosure that induced the insurer to take on the contract. Therefore the contract was avoided.
Momentum and the ombudsman clearly were not aligned with a consumer perspective. Insurance companies are being invested with a deep responsibility to care for beneficiaries. Was Momentum living up to this duty of care?
Around the world, insurance regulators have been trying to force insurance companies to think about this duty of care more than they currently do. This is part of the treating-customers-fairly approach that regulators in banking and insurance have applied to firms. This implies that insurers look at a claim from their customers’ perspectives.
No insurer should be expected to pay out when they have been induced to cover a risk about which the consumer has deliberately hidden information. But if someone has died through an unrelated cause, insurers can “reconstruct” the policy as if the disclosure had been made.
That is effectively what Momentum has done. It has created a new side cover for violent crime in the event that there is material nondisclosure. So now there are effectively two contracts — if one is avoided through nondisclosure, the other will pay out in the event of a death from violent crime. This adds some risk to Momentum, but the number of such cases it is likely to face is small.
Momentum was forced into this because the PR was so damaging. It allows it to pay out in the Ganas case, while still insisting on the importance of proper disclosure at the start.
But the event gives occasion for the life industry and its regulators to think more clearly how treating customers fairly should work. Arguably, less work has been done on this compared to banking or short-term insurance. The industry is given a deeply personal responsibility by its clients to care for those they love. That has to be squared with the important principles of contract law that apply.
The newly created Financial Sector Conduct Authority is imbued with a responsibility to protect financial consumers. The Ganas case provides an avenue for it to robustly engage with the life industry on how it should treat customers. The Ganas family may have done all consumers a favour.
• Theobald is chairman of Intellidex.
Intellidex head of capital markets Peter Attard Montalto quoted in Fin24as SARB rate hike draws investor criticism.
Intellidex head of capital markets Peter Attard Montalto quoted in Business Dayin the SA economy catching up.
Peter Attard Montalto Intellidex head of capital markets quoted in Financial Mail about How SA’s politicians broke land reform.
Intellidex head of capital markets Peter Attard Montalto quoted in Bloomberg ahead of Thursday’s Reserve Bank rate decision.
By Graunt Kruger
Doing research has never been easier. More and more research, especially surveys, is being done online. What does that mean for their accuracy and reliability? Can we trust the results?
When we think of surveys, we default to the idea of random sampling. It means that each member of the population has a similar chance of being selected into the study. Random sampling is also known as basic probability sampling. The best way to think about this is imagining that all names are written on strips of paper and put into a hat. The names are drawn one by one. Each name has an equal chance of being drawn. Of course, in a full-scale study the names in a hat are substituted for a computer program that randomly selects any of the names in a database.
The value of random sampling is that it allows the researcher to control for bias and enables the researcher to make inferences about the population. This means that the findings of a study based on random sampling, with a sample large enough to be representative of the population, can be confidently said to be the views of the population. This is often why well-designed research is so powerful.
Random sampling relies on a list of some sort that forms the basis of the process and it assumes that all selected respondents will answer the survey. But, as is often the case with online research, there might not be a master list. Then it isn’t possible to draw a random sample. This kind of research is known as non-probability research and researchers do not know the chance or probability that each person has of being selected.
There are different kinds of non-probability sampling:
Convenience sampling: due to constraints, the researcher chooses to conduct research at times or locations that are convenient/
Snowball sampling: one person refers another to the researcher, these subjects know each other and they could share certain views or beliefs.
Purposive sampling: the researcher intentionally chooses who is in the study and who is excluded.
Voluntary sampling: respondents self-select themselves to participate in the study; they are volunteering because of some underlying reason.
The challenges with these methods is that unintentional bias can be created and they may provide misleading information. However, non-probability research does have some advantages. It has lower costs, is much faster to execute and can be used to study groups that are too small to even do a probability sample. This method is useful for exploratory studies that intend to uncover whether a problem actually exists that warrants further study.
Does it mean that studies using non-probability methods are less scientific, less reliable, less accurate and less trustworthy? The short answer is that it depends on the objective of the research. If, for example, the research objective is to draw inferences about the entire population, then reader beware. The findings of non-probability studies cannot be used to infer the attitudes of the entire population.
If, however, the objective is to understand the views of a specific group – for example fathers with children in day care – then snowballing can be very effective to reach that group. It is important to understand though that the results of the research cannot be used to infer that the views of the respondents in this kind of study represent the views of the population. The findings can however be used to understand and describe the views held by the respondents.
Certainly the ease and reach of using the internet – especially the mobile internet in the South African context – has become a major enabler for doing social science research. These technologies did not invent non-probability methods but they have made them more pervasive. The onus is on researchers to ensure that they understand that the findings, implications and recommendations that are drawn from nonprobability studies are not the same as those from studies with random samples.
Bhattacherjee, A. (2012). Social science research: Principles, methods, and practices.</em><em>Kalton, G. (1983).
Quantitative Applications in the Social Sciences:Introduction to survey sampling.
Thousand Oaks, CA: SAGE Publications, Inc. doi: 10.4135/9781412984683.
Intellidex head of capital markets Peter Attard Montalto discusses IMF warning to SA on eNCA.
The Southern African Venture Capital and Private Equity Association (SAVCA) announced the winners of the inaugural SAVCA Industry Awards at a gala dinner at Montecasino on 8 November 2018.
Intellidex conducted the research for the process, contacting private equity and venture capitalist companies to submit nominee companies for the awards. After assessing the data, Intellidex presented a short list of finalists to the panel of judges, including an information pack on each company.
SAVCA is the industry body and public policy advocate for private equity and venture capital in Southern Africa. It represents about R165bn in assets under management through 170 members that form part of the private equity and venture capital ecosystem.
The objective of the awards was to recognise the portfolio companies that have thrived from private equity and venture capital investment. The awards also promote the positive impact that businesses have on job creation and the economy.
The 2018 SAVCA Industry Best Small Company final nominees were: i-PAY, Sweep South and UCOOK. The Best Medium-Sized Company final nominees were: Royal Schools, Tessara and Vumatel. The Best Large Company final nominees were Fidelity Security, Kwikot and Tsebo Solutions Group.
2018 SAVCA Industry Award for Best Small Company: SweepSouth
SweepSouth is an on-demand online platform for booking home cleaning services by connecting households with domestic workers. Nominated by the Vumela Fund, managed by Edge Growth, SweepSouth has grown from just three domestic workers and two co-founders when the business started in 2014, to employ 38 people in-house and 8,000 “SweepStars” across South Africa.
2018 SAVCA Industry Award for Best Medium-Sized Company: Vumatel
Vumatel is a provider of fibre-to-home and internet services. Vumatel was nominated by Vantage Capital for the role it has played in providing connectivity, and the job opportunities the company has created. Vumatel’s staff complement has increased to 660 permanent staff and 4,000 contractors used.
2018 SAVCA Industry Award for Best Large Company: Tsebo Solutions Group
Nominated by Rockwood, Tsebo Solutions Group is South Africa’s third-largest outsourced services provider in catering and facilities management. It operates in 27 countries with five service lines and over 39,000 employees.
Click hereto find out more about The Southern African Venture Capital and Private Equity Association.
There is no more capacity to take on credit. The future is financial wellness
If you think of the average financial services customer as a balance sheet, the past decade has been the age of liabilities. Banks and nonbank lenders have built their businesses on giving loans, particularly unsecured personal loans. But that era is coming to an end. There is no more capacity to take on credit.
So what will be the key theme of the next decade? We think the consumer balance sheet has to be rescued. And that suggests a different kind of business model for financial services companies.
It will be driven by consumer and political pressures — a backlash against the practices of the past, and a demand that financial services companies demonstrate that they are doing the right thing for consumers.
What does this approach look like? First, it is not about avoiding debt entirely. It is not about saving and never consuming. It is not about removing consumer choice. Rather, it is about giving consumers the kinds of products that ensure their balance sheets support a good life. This idea is often called “financial wellness”.
This is a paradigm shift for financial services companies, which need to shape their businesses to ensure that customers are financially well in the long run. That calls for a radical departure from the practices of the past decade that have left many customers financially distressed.
Financial wellness can be defined as doing well according to basic personal financial metrics such as positive cash flow, positive net worth, adequate risk coverage and high credit scores.
But it is also the subjective perception of personal wellbeing. Do clients feel well prepared for the future? Do they feel their financial situation allows them to live the life they want?
Subjective experience can also be misleading. Some think they are doing fine but underneath it their financial position is vulnerable to unexpected shocks.
We have to define some key metrics of financial wellness. First is positive cash flow — that is, having a surplus each month because your expenses are less than your income. A debt spiral is when customers do not have enough free cash flow to meet debt obligations and therefore borrow each month. Being able to put aside some money each month is key to removing financial uncertainty.
Next is net worth. This means that on balance their assets exceed liabilities. Within the balance sheet we should ask if the assets and liabilities are optimal — is the individual well invested in a diversified portfolio that matches their risk tolerance at a low cost, while their borrowing and other liabilities are well priced? Is there sufficient liquidity in those investments for emergencies? Borrowing should occur to support asset accumulation (such as property) or other investment, such as education. Third is having appropriate insurance for unexpected events that could devastate you financially.
Finally, financial wellness is about having a good credit score to enable you to get access to credit when you need it, at a good price.
A good example of bringing the subjective and objective dimensions together is from a recent study by Prudential Financial. It finds that only one-third of US consumers have a subjective sense of their financial wellness that is positive and aligned with reality; 37% feel bad about their finances, for good reason; 17% feel too positive relative to reality; and 12% are unnecessarily pessimistic.
A comprehensive definition of financial wellness must take account of an individual’s complete financial picture: income and expenses, assets and liabilities, insurance and credit — all of which operate in concert, after all.
The key for financial services companies is how to find the business model in a financial wellness approach. There are opportunities to develop products across the consumer balance sheet that support consumers with productive debt and healthy asset accumulation. Products can help consumers manage their risks and liquidity. Myopia on this issue is not good for consumers, and even worse for the financial services industry. The key for financial services companies is how to find the business model in a financial wellness approach. Adopting a comprehensive understanding of financial wellness helps to envision new products and services while guiding consumers to outcomes in their best interest.
• Kruger is head of strategy research at Intellidex, and Locke is head of OutVest
Barbara Hogan prepares to testify at the Zondo commission of inquiry into state capture. Picture: ALON SKUY
Sometimes it will be seeing things from a different angle, sometimes the passage of time, sometimes it’s the same thing that’s always been there just exposed in a new setting.
Barbara Hogan’s testimony to the Zondo commission last week caused a shift in perspective, especially as she zoomed in on ANC cadre deployment.
The media suddenly seemed to collectively rediscover that this was an issue because of the calm and quiet of the Zondo commission and the credibility of Hogan. There was a shift in perspective that this seemed to offer.
Yet of course cadre deployment has been a cornerstone of the ANC’s National Democratic Revolution policy (ideology might be a more appropriate term) since well before the transition to democracy. All this used to be very transparently presented on its website until there were IT issues.
The Zondo commission — whilst not really changing the narrative per se (that has been in place over the last two years) — is, through the exposition of so much new detail, creating a shift in perspective about how SA has operated as a complex political economy machine.
Cadre deployment has been a topic of note since I started looking at SA, yet there have been few instances where it has been fully and robustly called out until recently. State capture has been seen to be facilitated by many things, but at its core has been the right people in the right place. We are not talking about political posts here, but throughout the wider state, including state-owned-enterprises (SOEs).
SA needs to actively have a debate about if, say, recent calls to sort out municipalities for instance, or sort problems at SOEs, will ever be possible without an end to cadre deployment.
This wide lens perspective is needed, rather than getting lost in the huge volumes of (nevertheless very fascinating and important) detail that is coming from the Zondo commission, otherwise the same mistakes can be made again.
Crises can create sudden shifts in perspective and thinking if seized. State capture has been that opportunity and silver lining for SA. Yet it seems some of the urgency and focus has been lost already.
Take the Treasury. Through the two years from Nene-gate, it was lifted up and guarded by civil society and the media — there was an outcry when Kenneth Brown left at the end of 2016. Yet since then the clamouring around it has gone quiet.
In the past few years it has seen a significant loss of staff — many to the Reserve Bank (which is now very well-capacitated indeed) — and needs to have much greater capacity in the office of the chief public procurement officer to ensure state capture can never happen again.
In a tight fiscal world, where there are scarce skills resources in the country, the Treasury needs both internal capacity but also to crowdsource support.
The Treasury wins awards for its world class transparency, as seen with the Vulekamali budget portal or the excel pivot tables they provide. Yet, there are several more layers of information at the Treasury’s disposal which could be made available, which could tie in the e-Tender portal and the central supplier database into one whole.
Implementing “open contracting” standards as developed by the Open Contracting Partnership would help this process, giving a whole new detailed perspective on how money is spent at the most granular level and strip away places for future corruption to hide. Business should see this as an opportunity, not a threat, and facilitate the process with government. NGOs and civil society could then peruse and scrutinise their own areas — say health or education spending — to call out and report suspicious activities.
MPs also need greater assistance. Parliamentary committees have increasingly become roving investigation bodies jumping from issue to issue with minimal support. The parliamentary budget office needs to be boosted to rival the intellectual capacity and workload of the congressional budget office in the US. It has about 235 employees, which is nearly half the number of senators and congressmen. The South African budget office only seems to have 10 staff and a vacant director position from its website, to service 490 parliamentarians. A beefed-up office would provide MPs the tools for greater investigative and digging capacity.
A higher efficacy of public spending driven by crowd-sourced transparency, facilitated through a more capable state without cadre deployment, could be two simple building blocks coming together to accelerate so many other things the state needs to be doing better, from land reform to economic policy to education to health.
SA needs to avoid a loss of perspective that state capture and the Zondo Commission can immediately provide to spur change.
• Attard Montalto is head of Capital Markets Research at Intellidex.
Intellidex is a leading research and consulting firm that specialises in capital markets and financial services in Africa.