Troubled state-owned entities have become the metaphorical albatross around the neck for the government, as was evident from the Minister of Finance’s recent medium-term budget.
At the briefing to Parliament afterwards, Deputy Finance Minister David Masondo indicated that it was time to talk to the private sector to assist in addressing state failure.
In a media release on Tuesday, the South African Special Risk Insurance Association (Sasria) indicated that it has received 100% of the 14 051 claims, valued at R32 billion. Of these, R12.6bn had been paid out by Monday, 15 November, with a target of settling 80% of claims up to R60 million by March 2022.
National Treasury allocated an additional R11bn towards honouring clients’ claims and recapitalising the organisation.
Sasria extended its appreciation to the insurance industry for their “overwhelming” support. Many clients who suffered great losses were assisted to maintain their business operations and minimise the impact of the loss.
A total of 12 050 claims were received in the under R1m band, with a total claim value of just over R2.259bn. Cedric Masondo, Sasria’s managing director, said: “On these claims, our agent companies have been engaged and mandated to facilitate the claims. The agent companies have been given a float of over R2.6bn to settle claims within their mandate and to date have paid over R1.8bn and are on track to settle the remaining claims by the end of December.”
He emphasized that the company would also endeavour to settle 80% of all claims by the end of the year.
While there has been commendable progress, Sasria acknowledges the challenges related to its capacity in the market. In this regard, Sasria has curated solutions such as increasing mandates of some agent companies. “We have also increased our staff complement, and our broker network is helping clients with claims formulation supported by our internal Underwriting and legal team that have been hard at work with giving guidance and attending to policy interpretation matters,” said Masondo.
“Given significant shifts made by Sasria since July’s events, there have also been incidents of fraud and the inflation of claims. Therefore, we have made our loss adjusters the first gatekeepers, ensuring that claims reach Sasria, and an internal team makes further rigorous assessments, in line with our standard quality control processes. There are also complementary controls led by reputable independent forensic auditors and an independent building moderation team,” he said.
Masondo reiterated that the company remains committed to building financial reserves, to fast-track its path to sustainability. “Our drive is to have social impact, be efficient and ethical. We are also an insurer that wants to be modern, thus consistently evolve with technology.”
What happened to Sasria’s reserves?
An article in Netwerk24 sheds some interesting light on this very valid question. At the outbreak of the civil unrest, Masondo was very confident that the government insurer would meet its obligations with the same ease as it previously did in the nearly 50 years of its existence. When the extent of the claims became apparent, he was forced to change his tune. Sasria, like its counterparts, were obliged to approach National Treasury cap in hand for a bail-out.
But here is the important difference.
In previous years, Sasria had exceeded its statutory limits, often by as much as 200%. What happened to these excesses? Over the past 10 years, it paid R14bn over to the government in the form of dividends. This means that, unlike most other SOEs, Sasria was, in a way, able to recoup funds “invested” with its shareholder. It was not a one-way drain, as with the others. Just imagine what the current situation could have been if all SOEs had contributed to the state coffers over the past 10 years, rather than bled it, and us, the taxpayers?
Private enterprise to the rescue
As indicated by Masondo, the state insurer relied heavily on the infrastructure of the short-term insurance industry to successfully register each of the 14 051 claims. Sasria faced some serious challenges on its own: its internal capacity to manage large losses, overstretched loss adjusters, clients’ struggle with the formulation of claims. This is where private enterprise saved its bacon. Most of the claims that were resolved were those of the smaller, more vulnerable businesses.
Unlike in other crises, such as the Covid pandemic, where fraud almost took on unfettered proportions, preventative measures were immediately implemented to detect and prevent this. Unlike the rest, the funds could be used for its intended purpose, rather than line the pockets of criminals, never to be seen again due to ineffective prosecution and drawn-out legal processes.
Blueprint for co-operation
If ever there was a practical example that the government could follow to resuscitate the ailing economy, and particularly SOEs, this is it. The private sector is more than willing to play its part, as evidenced by undertakings at the president’s investment rallies.
Unfortunately, the government is hamstrung by political constraints such as cadre deployment, which results in highly ineffective people retaining their positions of power, and yielding this for personal gain and security, rather than to uphold the principles of the oath they were sworn in under.
With general elections around the corner, I am not expecting the unworthy to fall on their swords, neither do I foresee the president sacrificing support by firing them. He has enough enemies in his bosom, as it is.
All we can hope for is that examples such as the Sasria/insurance industry one will become the norm, rather than the exception. For this to happen, though, there needs to be a change of heart by those tasked with rescuing the economy. Fortunately, it appears that National Treasury has seen the light. Now to push it through.