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News Article : King II boost
Category: Short-Term Insurance : Risk Management
Author:Nigel Benetton
Email:[email protected]
Posted:28 Jun 2005

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Losses for companies that ignore the report

Despite the King II recommendations on good corporate governance, many companies are ignoring risks that could put them out of business.

Mpumi Tyikwe, Executive Head of Corporate Lines at Santam says, "Since its publication in March 2002, the King 2 code on corporate governance has elevated risk management into corporate boardrooms but still many companies are paying lip service to the code.

"An analysis of recent corporate losses shows that if many companies had proper risk management processes, these losses would have been dramatically reduced if not eliminated."

King II makes the board accountable for risk management and recommends that a sub committee of the board be formed to review risks and to take effective measures to limit them where possible.

Mr Tyikwe says that while some organisations have made slight attempts at coherent risk management procedures, others have tried but often don't have the in-house skills to do it effectively.

"It is advisable for a company to appoint an insurance broker accomplished in providing specialist advice in the implementation of the risk management process. One who has an in depth knowledge of the industry in which the client operates. A good broker should also have broad and flexible insurance options.

"It is always advisable to use local insurers because they will be accessible in the event of a dispute."

Mr Tyikwe advises that a mistake companies often make is appointing a broker for too short a period. "The duration of appointment is important because normally the results of a successful risk management programme will start showing over a two to three year period. Chopping and changing a broker only leads to discontinuity of risk management processes."

He notes that three years is long enough to see the value created by the broker but short enough to allow other brokers an opportunity to compete for the business when the appointment comes up for review by demonstrating to the company that it can improve the existing insurance arrangement.

"The ability of the broker to have the claim settled in a hassle free manner is the true test of the value they add to the company."

Mr Tyikwe points out that more and more companies are taking self-insurance programmes through cell captives. This is an insurance structure that allows a corporate to borrow the insurer's licence for a fee and pay the premiums into this structure to pay for the low severity and high volume claims.

"Companies use this structure to lower their cost of cover and be able to enhance the company's risk management tools. Companies will be in a position to analyse the claims in a cell and they can look to the broker to advise them on how to minimise or even prevent future losses."

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