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Transcript
LEARNER’S STUDY GUIDE
Analyse the Financial Services
industry and the role of insurance in
a business environment
(12168)
NAME:
ORGANISATION:
COURSE NO.:
OR
RPL:
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Contents
Instructions to the learner
2
UNIT 1
Different financial services (SO1)
7
UNIT 2
Important insurance needed for a business (SO2)
29
UNIT 3
Contract of insurance in a business entity (SO3)
42
UNIT 4
Negotiating an insurance contract to meet the needs of a selected
business enterprise (SO4)
49
Answers to self-tests
62
Addendum 1
68
Addendum 2
75
Addendum 3
78
Version 1 2017/06/28
1
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Instructions to the learner
Introduction
Welcome
Welcome to the learning intervention that deals with the analysis
of the Financial Services industry and the role of insurance in a
business environment.
This learning intervention forms part of a level 4 Skills
Programme - Analyse the Financial Services industry and the role
of insurance in a business environment, which enable you to
meet the minimum requirements to be “fit and proper” in terms of
the Financial Advisory and Intermediary Services (FAIS) Act 37 of
2002.
Purpose of this
learning
intervention
This learning intervention analyses financial services for
commonality and difference and introduces the need for
insurance in a business entity. The focus is knowledge, skills,
values and attitudes in relation to the business context.
Overall
outcomes
By the end of this learning intervention, you should be able to

analyse the different services that are classified as financial,

explain the different kinds of insurance that are important in a
business enterprise,

explain a contract of insurance in a business entity, and

negotiate an insurance contract that meets the needs of a
specific business enterprise
Target
audience
This learning intervention is intended for people who need to
analyse the financial services industry and the role of insurance in
a business environment
Delivery
medium
This training will take place in the form of self-study. In other
words, you are required to work through this self-study guide and
complete the included activities. The activities are
comprehensive, practical and experiential in nature. They are
based on “real work” where you work with real workplace
scenarios and case studies.
Prerequisites
Learning assumed to be in place

You should be competent in Communication, Mathematical
Literacy and Financial Literacy at NQF Level 3
Learner’s roles You are required to
and
 work through this self-study guide,
responsibilities
 complete activities,
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2
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Introduction to
this self-study
guide

ask for guidance and support when required, and

complete the assessment.
Analysis of the Financial Services industry and the role of
insurance in a business environment are the central themes of
this training and are discussed in detail in this self-study guide.
This guide makes use of icons to guide you in your learning
process below is a description of these icons:
Icon
Meaning
Icon
Meaning
Self-tests and
activities
Assignments and
assessments
Study
Outcomes
Read
Action verbs
This guide uses action verbs in its learning outcomes. Action
verbs tell you what you must DO.
Action verb
Explanation
Apply
Make use of the relevant rules; put into practice.
Analyse
Put into a specific order or relation.
Describe
Show by clarifying the scenario
Explain
Can you write in your own words to explain?
Identify
Ascertain the
characteristics
Indicate
Show by using examples
origin,
nature
or
define
The diagram below illustrates the broad process to follow when
doing an analysis of the Financial Services industry and the role
of insurance in a business environment and will also illustrate
how the self-study guide is structured.
Version 1 2017/06/28
3
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Analysis of the Financial Services industry and the role of insurance in a business environment
(12168)
UNIT
STUDY
READ
SELF-TEST/
ACTIVITY
ASSESSMENT
Start
here
UNIT 1/SO1
Analyse the
different
services that
are classified
as financial.
The outcomes for this unit
The content of Units 1.1-1.5
Study the examples of four major holding
companies in Addendum 1
Complete Self-test 1
UNIT 2/SO2
Demonstrate
knowledge and
understanding
of the kinds of
insurance that
are important in
a business.
UNIT 3/SO3
Explain a
contract of
insurance in a
business entity.
The outcomes for this unit
The content of Units 2.1-2.9
Complete Self-test 2
The outcomes for this unit
The content of Units 3.1-3.4
Complete Self-test 3
UNIT 4/SO4
Negotiate an
insurance
contract to
meet the needs
of a selected
business
enterprise.
The outcomes for this unit
The content of Units 4.1-4.6
Study the examples of a typical risk
questionnaire in Addendum 2.
Complete Self-test 4
Start preparing for
your final assessment
Page 1
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4
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Unit
standards
The overall outcomes and specific outcomes of this learning
intervention are aligned with registered Unit Standard 12168.
This means if you are able to demonstrate competence in the
learning outcomes, which are aligned to the specific outcomes of
the Unit standard you will qualify for credits, which will contribute
towards the 120 credits required for a national certificate at Level 4.
If you are unable to demonstrate competence, you will not obtain
any credits for the unit standard.
This learning intervention is aligned to the following unit standard as
illustrated in the table below:
Unit standard Title
Analyse the Financial Services
industry and the role of insurance
in a business environment
Unit
standard
number
12168
NQF
level
Number
of
credits
4
9
This means a total of 9 credits towards a National Certificate.
How is this
self-study
guide made
up?
This course has four units each unit corresponds with a Specific
Outcome (SO) as indicated in the SAQA documentation
(Addendum 3). Each unit has a number of sub-units, these subunits correspond with the assessment criteria (AC) as indicated in
the SAQA documentation.
Note: SO1AC1 refers to Specific Outcome 1 Assessment Criteria 1
Assessment
In order to obtain the 9 credits for Unit Standard 12168, as
discussed previously, you must provide evidence of your
competence after working through this self-study guide.
Providing evidence of your competence will occur during the
assessment process. The laid down policies, procedures and
related issues regarding assessments will be explained to you
before the assessment takes place. You will also be given an
overview or instructions on how the assessment will take place,
what evidence you must produce, how you must prepare yourself,
etc.
A qualified assessor or your line manager will guide and support
you throughout this process.
Resources
The following resources will assist you in preparing for your
assessment:
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5
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Our wish
to you
Reference
Availability
Multimark III ® Policy wording and
all the Schedules and
Specifications
Any insurance company or
short-term insurance personnel
Everything of the best in your studies. Enjoy every moment that you
spend studying. It is time well spent in making sure of your future.
Version 1 2017/06/28
6
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
UNIT 1
Different financial services (SO1)
After completion of Unit 1 you should be able to do the
following:
Specific
outcomes for
this unit

Indicate the similarities and the differences between services
that are classified as financial.

Analyse business activities that are common to most financial
service providers and give an indication of commonalities and
differences of these services.

Identify changes in the structure of the financial services
sector and indicate how these changes will impact on the
sector and the consumer.

Analyse the four main holding companies in terms of links to
other financial organisations.

Identify financial organisations listed on the JSE and
explanation why some financial organisations choose to list
locally and offshore.
Study the material for each sub-unit before moving onto the
activities.
1.1
Various categories of financial services (AC1)
Categories of
financial
services
The South African financial services sector can be said to be very
sophisticated and developed, by world standards. Broadly
speaking the categories of financial services are
Licences
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
micro financiers,

banking,

capital markets,

collective investment schemes,

insurance,

retirement funding, and

medical aid.
The provision of any of these financial services is regulated by
law, and any company wishing to provide these services must be
licensed to do so, as must any financial intermediary, or broker,
who assists with the procurement of any of these services.
7
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Regulator
A regulator ensures that the particular industry functions in
accordance with the laws passed by Parliament. The main
purpose of regulating these markets is to ensure an orderly
market and protection of the consumer, in line with international
trends and requirements. Heavy penalties are applied to any
organisation, or company, that fails to abide by the laws.
Usury Act
The Usury Act 73 of 1968 governs the maximum interest rate
which can be charged a borrower, who is defined as follows:

any person to whom a money lender has granted a loan of a
sum of money in terms of a money lending transaction
The definition of a money lending transaction includes the
purchase of goods, the use of a credit card, and the purchase or
lease of movable and immovable property. However, the Usury
Act does not apply to loans of up to R10 000.
Microfinanciers
Loans below R10 000 are exempt from the Usury Act. This is the
area where micro-financiers direct their marketing. They are able
to provide loans at an interest rate they consider fair for the risk
they take. It is said that the micro-financier operates outside of the
banking realm.
Traditional banks also provide loans under R10 000, but only to
persons that the banks consider a safe risk. The micro-financiers,
therefore, concentrate their market on those persons who are not
serviced by the traditional banks, or who have a credit history that
makes them a high risk.
Micro-financiers have a significant role to play in extending credit
facilities to the un-banked and also allowing these individuals to
build a credit track record, which should ultimately enable the
individual to access the formal banking sector’s credit facility
agreements.
Micro Finance
Regulatory
Council
In the past, certain unscrupulous micro-financiers charged
exorbitantly high interest rates and denied traditional banks
access to the records of good paying clients, knowing that they
could lose the business due to lower interest rates.
This prompted Government to intervene and force the microfinanciers to form, and become members of, the Micro Finance
Regulatory Council. In May 2004, there were 1 641 registered
micro-financiers, of whom 245 were black.
Traditional
banking sector
Version 1 2017/06/28
The banking sector is regulated by the supervisory division of the
South African Reserve Bank (SARB). The banking sector can be
broadly categorised into commercial banks and merchant, or
investment, banks ranging in size from small niche to large
banking concerns.
8
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Equity
financing
Equity financing is where the business sells shares in the
company. The investor (the person or entity) who purchases
shares acquires ownership in the company for the percentage of
shares purchased. Investors do this in the hope of achieving
greater returns than those providing loan capital at a fixed rate of
interest because they will share in the profits of the business and,
if the business does really well, the value of their shares will also
increase.
Purchasing shares in a business is also referred to as acquiring
stock in the business. An investor can purchase shares in a
business via a private placing or in a company that is registered
and listed on the Johannesburg Securities Exchange (JSE).
JSE
Companies listed on the JSE have to comply with the JSE’s
regulations. This gives the investor the added confidence that the
company has to comply with the minimum requirements of the
JSE, whose terms of listing are strict and require total
transparency as to the financial activities of the company
concerned. Investing in listed companies is seen as having less
risk than investing in private companies.
The JSE, therefore, provides an important vehicle whereby
investors can invest their money in businesses and whereby
businesses can raise finance. Companies list on the JSE in
particular categories. Examples are resources (mining, oil, and
gas), basic industry (chemicals, forestry and paper, steel,
construction, and building materials), and financials (investment
companies, banks, niche financials, life assurance, insurance,
and real estate).
To assist businesses not meeting the requirements of a primary
listing to raise money, in the late 80s, the JSE introduced a
category for the development capital market, also known as
venture capital. This enabled start-up and smaller companies to
raise finance via the JSE.
AltX
Until recently, the only stock market in South Africa was the JSE.
To promote the equity financing of small and medium companies,
the first alternative exchange in Africa, named AltX, was launched
by the JSE on 27 October 2003. AltX replaced the venture and
development capital markets established by the JSE.
Collective
investments
Collective investments are investment schemes in securities
(shares that are listed on the JSE and other securities
exchanges), property, and participation bonds. The securities and
property investment schemes are also referred to as unit trust
funds.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Unit trusts
Unit trusts can be purchased in a single lump sum or on a
monthly basis by contributing a regular monthly payment into the
scheme. This makes unit trusts an ideal investment vehicle for
private individuals who may wish to invest small amounts on a
regular basis.
The individual investor funds are pooled with those of other
investors, and these funds are invested on behalf of the investors
by experienced fund or asset managers, and each investor owns
“units” in the fund.
The funds have particular investment criteria. Some unit trust
funds devote their clients’ funds to purchasing a mixture of shares
on the stock exchange, while others purchase only those in a
particular sector, such as financial, industrial, or property shares.
There are also unit trust funds which devote their clients’ funds to
investments outside of the stock exchange, such as fixed interest
bonds or the money market.
In this way, unit trusts cater for small investors providing differing
levels of risk which the investor wishes to take.
Insurance
The assessment criteria that follow contain a lot more detail on
the insurance sector, and therefore, we will only consider a brief
overview of the insurance sector here.
Short-term
insurance
Typically, we think of personal lines insurance for individuals,
such as householders, all risks, and motor insurance, when we
think of short-term insurance. For businesses, short-term
insurance includes fire, business interruption, theft, money,
employee dishonesty, motor vehicles, and other business risk
insurance covers.
Long-term
insurance
Long-term insurance pertains to life insurance, investment
policies, and individual retirement annuity policies.
Employee
benefits
Employee benefits include group pension and provident funds
and group life and disability insurance.
Medical aid
This includes both individual and group medical aid schemes.
Funeral
policies
Both the long-term insurance companies and friendly societies
provide funeral insurance. While long-term insurance companies
also provide other products, friendly societies only provide funeral
insurance.
Intermediary
services
Many of the financial services described above are provided to
the client via an intermediary who is also referred to as a broker.
Some products are only available to the client directly from the
financial service provider, whilst others are available either
directly or via an intermediary. There are some financial services
that are only available via an intermediary.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
For example, a client may apply directly to a bank for a home loan
or he could use a mortgage broker, who is a person who
specialises in arranging mortgages at the best interest rate. Shortterm insurance is available directly from the insurance company or
via an intermediary. If, however, you wish to invest in shares in a
company listed on the JSE, you can only do this via a stockbroker.
South African
Reserve Bank
(SARB)
Monetary
policy
SARB plays a central role within the financial services industry and
is often referred to as the central bank. Activities of SARB include
the following:

Monetary policy

Statistical and economic information

Payment and settlement systems

Bank supervision

Banknotes and coins

Exchange controls
The Reserve Bank is responsible for setting and implementing an
acceptable monetary policy, which is designed to enhance the
country’s economic stability and development. Although SARB is a
privately owned bank (not owned by Government), it acts as
Government’s banker and assists Government in controlling the
country’s liquidity and interest rates.
The main functions are to

perform domestic as well as international banking and treasury
services,

manage the gold and foreign exchange reserves of the country,

implement the country’s interest rate policy,

act as funding agent of Government, and

facilitate the effective functioning of the domestic financial
markets.
SARB regards its primary goal in the South African economic
system as the achievement and maintenance of the country’s
financial stability, which would be evidenced by an effective
regulatory infrastructure, effective financial markets, and effective
and sound financial institutions.
Statistical and
economic
information
Version 1 2017/06/28
SARB collects, processes, interprets, and publishes economic
statistics and other information. To this end, SARB publishes
quarterly bulletins and annual economic reports. The data these
publications contain are a major source of information for policymakers, analysts, and researchers.
11
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Payment and
settlement
systems
SARB provides an inter-bank settlement service via a real-time
electronic settlement system called the South African Multiple
Option Settlement (SAMOS) system. Besides single settlements
between banks, SAMOS is also used for the settlement of
obligations arising out of retail payment clearing and the equity
and bond markets.
SARB oversees the safety and soundness of this national
payment system and implements risk-reduction measures to
reduce systemic risk.
Bank
supervision
SARB is responsible for bank regulation and supervision in South
Africa. The purpose is to achieve a sound, efficient banking
system in the interest of the depositors and the economy as a
whole. This function is performed by issuing, and controlling,
banking licences and monitoring their activities in terms of either
the Banks Act 94 of 1990 or the Mutual Banks Act 124 of 1993.
Banknotes and SARB has the sole right to make, issue, and destroy banknotes
coins
and coinage in South Africa.
The SA Mint Company, a subsidiary of SARB, mints all the
currency coins that are allowed to be used as legal tender in
South Africa.
The SA Bank Note Company, another subsidiary of SARB, prints
all banknotes on behalf of the governor of SARB.
Look at any South African banknote and see who owes you the
value of the note.
Exchange
controls
Version 1 2017/06/28
SARB has been given the responsibility for the day-to-day
administration of exchange control. The Minister of Finance has
also appointed certain banks to act as authorised dealers in
foreign exchange. This appointment gives these banks the right to
buy and sell foreign exchange, subject to conditions and within
limits prescribed by the Exchange Control Department of SARB.
Authorised dealers are not agents for SARB, but act on behalf of
their customers. The country’s exchange control policy is
determined by the Minister of Finance (or by Government/Cabinet
in the broader sense). SARB, therefore, merely acts as an adviser
to the Minister of Finance.
12
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Financial
Services
Board (FSB)
Much as SARB is responsible for bank regulation and supervision
in South Africa, the FSB is responsible for the regulation and
supervision of the non-banking financial services, which includes
the following categories of financial services:

Insurance

Collective investment schemes

Financial advisors and intermediaries

Capital markets

Retirement funds and friendly societies
The purpose of the FSB is to ensure an orderly and professional
financial services market, which is in line with international
standards. One must bear in mind that the failure of an insurance
company or an investment scheme can result in the financial ruin
of large numbers of individuals and create extreme hardship.
The FSB is the Minister of Finance’s controlling arm of the nonbanking financial services sector of South Africa’s economy.
Unlike SARB, the FSB is a government organisation which has
industry leaders on its governing committees.
South African
Revenue
Services
(SARS)
Similarities
between
financial
services
Version 1 2017/06/28
While the Minister of Finance determines the tax policy of the
country, SARS
is responsible for the collection of the tax, which includes

individual tax,

company tax,

value added tax,

capital gains tax,

airport passenger tax,

customs duty, and

all other direct and indirect tax.
There are similarities between the different financial services:

Risk

Transactional banking

Investment

Financial management

Economic development

Information technology
13
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Risk
All of these categories of services deal in risk in one form or
another. The banking sector has risk when they lend money in
return for interest. The risk profile of the lender will affect the
interest rate the bank will charge: the higher the risk, the higher
the interest rate the bank will charge.
Insurance companies underwrite risk in return for premium: the
higher the risk, the higher the premium.
In the capital market, it is generally accepted that the returns are
relative to the risk taken, and once again, the higher the risk, the
higher the potential returns.
Transactional
banking
Transactional banking refers to clients who deposit and draw cash
from their bank accounts. Compare this with the motor insurance
on a large fleet of vehicles. Some businesses still insure
comprehensively, instead of retaining risk, even though they know
there will be a minimum level of claims. In a sense, they merely
rand swap with the insurance company. They pay the premium at
the beginning of the year based on their claims experience of the
year before. Some will say there is a similarity between this and
transactional banking.
Investment
All of these sectors compete for the investor’s funds. Banks offer
savings accounts, call accounts, and fixed deposits where clients
can invest their money. Life insurance companies offer
investment products. Companies on the stock exchange wish to
attract capital as do collective investment schemes.
Financial
management
All of the sectors have to do with either personal or business
financial management.
Economic
development
All of the sectors contribute towards the micro and the macro
development of the economy of South Africa.
Information
technology (IT)
All of the sectors in the financial services industry rely heavily on
IT as a delivery channel and to control their business.
Differences
between
financial
services
There are also differences between the various financial services:
Version 1 2017/06/28

Costs

Onshore/Offshore

Regulation

Taxation

Liquidity

Domestic/Non-domestic

Selection of investments
14
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Costs
The costs associated with the acquisition of various investments
by way of commission, fees, and taxes varies.
Onshore/
Offshore
Some of the financial service providers only provide services in
South Africa, whilst others can provide a worldwide service.
Regulation
The various sectors are regulated by different regulators. Banks
are regulated by the SARS, while insurance companies, unit
trusts, and other collective investments and the capital markets
are regulated by the FSB, and micro-financiers and medical aid
companies are regulated by the respective established councils.
Taxation
Without going into detail in this unit standard, be aware that the
taxation treatment of investments can vary significantly, both in
terms of the initial outlay and on-going contributions to the
investment and on its maturity.
Liquidity
Some investments may take longer to liquidate than others. For
example, a 30-day notice bank account requires 30 days of the
intention to withdraw. Call accounts allow the client to withdraw
funds on one day’s notice if the amount is high.
Domestic/Nondomestic
Some of the financial services providers only deal with individuals,
others may deal with individuals and businesses, and others yet
again only deal with businesses.
Selection of
investments
Many categories of financial service providers specify their
investment avenues. For example, unit trusts may limit their
investments to companies listed under the property sector of the
JSE.
1.2
Analysis of common business activities for
financial service providers (AC2)
Commonalities and differences between the various activities of
financial service providers are summarised in the table below:
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15
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Activity
Microfinancier
Commercial
bank
Merchant
bank
Short-term
insurance
Long-term
insurance/
Retirement
funds
Medical
aid
Unit
trusts/
Securities
exchange
Credit
Yes
Yes
Yes
No
No
No
No
Transactional
banking
No
Yes
No
No
No
No
No
Short-,
medium-term
loans
Yes
Yes
Yes
No
Yes
No
No
Mortgage
finance
No
Yes
No
No
No
No
No
Source of
capital
No
Yes
Yes
Yes
Yes
No
Yes
Provides an
investment
vehicle
No
Yes
Yes
No
Yes
No
Yes
Corporate
financial
services
No
No
Yes
No
No
No
No
Insurance
No
No
No
Yes
Yes
Yes
No
1.3
Current changes in the structure of the
financial services sector (AC3)
Changes in structure can be driven by legislation or by means
of mergers, acquisitions, and insolvencies or by technology.
Mergers and
acquisitions
All sectors saw radical consolidation during the merger mania
of the 90s, and this resulted in a huge reduction in the number
of banks and insurance companies. Sadly, this has left the
consumer with less choice.
Changes in
legislation
Every sector of the financial services industry has undergone
huge structural change as a result of continued regulatory and
legislative reform. Sectors which were previously not
regulated now fall under the ambit of official legislated
regulation, such as the micro-financiers and financial advisors
and service providers. Other sectors have been combined for
the purposes of regulation, such as unit trust and participation
bonds, which were regulated by separate legislation in terms
of the Collective Investment Schemes Control Act 45 of 2002.
Conversely, other sectors were separated, such as the longand short-term insurance companies.
Version 1 2017/06/28
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Structures
More often than not, regulatory changes have an impact on
the way financial service companies are structured. For
example, many insurance companies had both long- and
short-term divisions. With the splitting of the original insurance
Act into long- and short-term Acts, insurance companies had
to register separate companies and separate their short-term
and long-term insurance activities.
Moreover, as the lines between banking and insurance and
collective investments and between insurance and medical aid
became more blurred, the legislators have endeavoured to
level the playing fields and to demarcate between the various
financial services. For example, there have been attempts to
level the playing field with regard to the tax treatment of
investments within the various sectors.
Medical aids
In the medical aid arena, a lack of clarity between what longterm insurance companies can do in terms of the Long-term
Insurance Act 52 of 1998 as opposed to the Medical Schemes
Act 131 of 1998 is causing long-term insurance companies to
seriously consider withdraw health products.
Black economic
empowerment
(BEE)
The Financial Services Charter, brought about to address
Government’s requirements regarding BEE will have
significant impact, across the board, on the structure of the
financial services industry.
Technology
Changes in technology and particularly with the facility of
Internet banking, the improvement of online security, and
mobile telephony are impacting on delivery channels. Banking
services and insurance products are available online.
Telephone banking is available. Banks are using SMS
services of cellular phones to confirm transactions and
balances. These changes have impacted on the way some
banks and insurance companies are structured. Virtual
banking is a reality now.
Where shares used to be traded on the floor at the securities
exchange, today paper scrip is being phased out, and shares
are traded electronically.
These changes have brought about enormous added ease
and convenience to consumers.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
1.4
Analysing four of the main holding
companies in the field in terms of links to
other financial organisations (AC4)
Financial
institutions
The major financial institutions in the field have diverse
holdings in the field, which gives them a presence throughout
the sector. Financial institutions, in this context, refers to the
large life insurance companies (long-term insurance
companies) and banking groups. Apart from life insurance and
retirement funds, their holdings span from asset and fund
management to property and other investment companies,
banking, short-term insurance, and medical aid. This provides
them with enormous leverage for cross-selling of products
within their holdings.
These financial institutions also have holdings outside of the
financial services field. Several of the main holding
companies, as at September 2004, appear below.
Study the examples of four major holding companies in
Addendum 1.
1.5
Financial organisations listed on the JSE
(AC5)
Financials
Companies list on the JSE in particular categories of activity.
The financial sector is listed under the category of
FINANCIALS. Organisations within the financials sector
include investment companies, banks, speciality and other
finance, life assurance, insurance, and real estate.
Exercise
As an exercise, have a look at the share guide in one of the
daily newspapers and examine the companies listed under the
financial sector headings above.
Overseas listings
Companies list locally and offshore to increase ability to raise
capital. This is known as a dual listing. A dual listing increases
access to markets to raise capital for the business. Moreover,
companies may list in more than one territory when they have
significant amounts of business in those territories.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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1. Broadly speaking what are the categories of financial
services?
Self-test 1
2. What changes in the financial services sector have you
noticed recently?
3. List at least 4 financial service organisations that are
quoted on the JSE.
4. Study Example 2 (Addendum 1) of Sanlam’s holdings and
identify the main business of at least 10 holdings.
5. Why do some companies prefer to list offshore?
Competency
Competency
check and
progress
indication
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Check
SO1
I can indicate the similarities and the
differences between services that are
classified as financial.

AC1
I can analyse business activities that are
common to most financial service providers
and give an indication of commonalities and
differences of these services.

AC2
I can identify changes in the structure of the
financial services sector and indicate how
these changes will impact on the sector and
the consumer.

AC3
I can analyse the four main holding
companies in terms of links to other
financial organisations.

AC4
I can identify financial organisations listed
on the JSE and explanation why some
financial organisations choose to list locally
and offshore.

AC5
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
UNIT 2
Important insurance needed for a business (SO2)
After completion of Unit 2, you should be able to do the
following:
Specific
outcomes for
this unit

Explain the concept of insurance and pooling in relation to
business enterprise risk management.

Describe the role of insurance in relation to business
enterprise financial planning.

Apply the terminology used in the insurance sector

Explain the concept of insurable interest as applied to a
specific business entity.

Identify the five events and risks that can be insured

Explain the advantages of insurance in relation to a specific
business entity.

Identify two business events and risks that cannot be insured
and explain why such risks are insurable.

Explain the concept of claims with reference to the effect
these have on the payment of a claim.

Explain the process auditing books of a business to provide
claims statistics.

Indicate the action that can be taken if claims statistics are
unsatisfactory.

Explain the concept of market/portfolio with reference to the
role of the intermediary and the insurance company.
Study the material for each sub-unit before moving onto the
activities.
2.1
Insurance and pooling of risk in relation to
business enterprise risk management (AC1)
London coffee
shops
Insurance, as we know it today, literally started in the London
coffee shops amongst the shipping merchants. The value of the
merchandise they were either importing or exporting was such
that if a ship sank en route or was hi-jacked on the high seas, the
merchant could face financial ruin. So they began to pool money
together, and if the cargo of one of the merchants was lost or
damaged, the merchant would be reimbursed from the money in
the pool. It could be said they were pooling their risks.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Statistics
Looked at it another way, they knew statistically that on average
out of so many voyages, one lot of cargo would be lost, but they
didn’t know whose cargo it would be. By contributing a small
proportion of the value of the cargo, the risk of its loss and
consequent financial loss would be transferred. Thus, the losses
of the few were paid for by the many. It was from this activity that
insurance companies evolved.
Risk transfer
In the simplest of terms, insurance is a mechanism whereby the
risk of financial loss for particular events is transferred to
someone else.
Let us look at the risk of fire. Say a business suffered a fire which
totally destroyed their premises, all of their equipment, stock, and
everything. Most businesses would not have sufficient cash to
survive such an event. Insurance is one of the ways in which risk
is transferred. For payment of a fraction of the value of what they
could lose, the risk of loss or damage to the assets by fire is
transferred to the insurance company.
Underwriting
This is really what insurance is. For payment of a sum of money
(the premium), someone else (the insurance company) will take a
risk, which if it occurred, could financially ruin the business.
Some enterprises pose more risk than others. So to ensure that
those enterprises which have a greater exposure are not
subsidised by those with less exposure, the insurance company
will charge a higher premium or impose special terms, or higher
first amounts payable. This is called underwriting.
Pooling of risk
The insurance company in turn needs to have a large pool of
risks, so that there is enough money from all of the small
contributions, to pay for the few businesses that do suffer losses.
Some activities are so unattractive, from an underwriting point of
view, that the traditional insurance companies will not provide
insurance cover. One such is nuclear risks. Businesses who are
involved in nuclear risks have thus got together and pooled their
risks to create their own insurance pool.
Risk
management
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Risk management is the science of

identifying what could go wrong,

quantifying what it would cost if it did happen,

estimating the cost of preventing it going wrong,

deciding whether to retain the risk or arrange transfer to an
insurance company,

controlling the risk, and

managing the entire process.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Transferring
risk
Companies that decide to transfer the risk to an insurance
company are contributing to a pool of knowledge gained by the
insurance company, who are able to calculate the statistics of an
event happening. Those companies that decide to retain the risk
do so at their own risk of not having sufficient capital to pay for
the event, should it happen.
Premium rates
Think about motor vehicle insurance. The premium paid goes into
a motor insurance pool with the insurance company. You have
the option of accepting the first amount payable required by the
insurance company, as a retained risk, or of increasing it and
saving premium. However, will you have the increased first
amount payable handy at the time of an accident? This is a risk
you have to seriously consider before making a decision. This is
one of the functions of employing a risk manager, or risk
management consultant.
Insurance premium rates are always less than 100%. Motor
insurance seems to be rated at ± 12% of the value of the vehicle.
Household contents insurance rates are nearer to 2% calculated
on the value of the house contents. Fire insurance premium rates
for a metal workshop could be as low as 0,25% on the value of
the workshop contents.
Premium
accounts
Insurance companies have years of statistics and are able to
assess a risk with reasonable certainty. A metal workshop fire
may only happen once in 400 years, hence, the rate of 0,25%.
However, the larger the spread of risk, that is, not all in your
suburb but throughout the country, the less chance of the
insurance company suffering a fire claim. All premium received by
the insurance company for metal workshops is placed in a metal
workshop premium account in their books. The more metal
workshops they insure, the larger the premium income, and the
less the effect on them should one metal workshop suffer a fire.
This is a simplistic explanation. All fire insurance premiums are
recorded in the books of the insurance company in their fire
account. All motor insurance premiums are recorded in the motor
account.
Pooling of
premiums or
risks
Pooling of premiums or risks converts to the insurance maxim of
“many paying for the few”: many premiums received to pay for the
few claims paid. Pooling relies upon the rule of numbers. The
more numbers you have to work with, the more exact you can be
on your assumptions and projections. You would be more
accurate if you had 1 000 motor claim values than you would be if
you had only 100 motor claim values with which to work. You
would be able to estimate the average value of motor claim
values expected in the future.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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2.2
The role of insurance in relation to business
enterprise financial planning (AC2)
Financial
planning
Business enterprise financial planning should not stop at
preparation of the budget, but should also consider what risks the
business faces and how the business would finance those risks
should they eventuate. Insurance is one of the major means that
businesses use to finance risk, and insurance is, therefore, critical
in any business enterprise’s financial planning.
Wealth
creation
The providers of the money needed to start or run an enterprise –
stakeholders or banks – will not invest or lend their money to an
enterprise unless they know that their money has been secured.
On the other hand, the enterprise cannot operate without the
money. Because of this, insurance is sometimes looked upon as
the enzyme which enables capital (money) and business to get
together to create wealth.
Insurance protects the enterprise against unforeseen financial
losses or liabilities and thus is vital to the financial wellbeing of the
enterprise. Broadly defined, insurance can be broken down into

short-term insurance,

long-term insurance,

employee benefits, and

medical aid.
Short-term
insurance
Short-term insurance is so called because it is generally
renewable monthly or annually and covers the assets, profits, and
legal liabilities of the enterprise. Accidental death or bodily injury
to directors and employees is also available from short-term
insurers.
Long-term
insurance
Long-term insurance can cover death or disability whether
resulting from accident or illness of the staff, directors, or key
people of the enterprise, although some long-term policies do
have an investment element.
Employee
benefits
Employee benefits refer to pension funds and group life cover.
Medical aid
Medical aid refers to cover for the staff against medical expenses.
Thus, the role of insurance in an enterprise spans all aspects,
from the enterprise’s assets, profits, and liabilities to the staff
employed by the enterprise.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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2.3
Terminology used in the insurance industry
(AC3)
Insurance is not unlike other business industries. The language
spoken is quite different from the language used in everyday
speech. The terminology used in the insurance industry is
extensive. Most of the terms used have been questioned in a
court of law where actual definitions have been set. Most of these
terms originated from the marine insurance policy created by the
traders who undertook their business negotiations in coffee
houses in London some 200 years ago.
A brief glossary of terms follows:
Betterment
Betterment describes a situation where the client has taken the
opportunity on the occasion of the loss or damage to replace the
property with something better and consequently will have a
proportion of the claim deducted, depending on the extent of
betterment.
Cession
Providers of finance on assets usually require the policy to be
ceded to them. This means that the proceeds of the policy will
vest in the financer and ensures that they will be used to replace
the assets which were damaged or, in the case of a total loss,
that they will be paid their outstanding balance before the client
receives the residue, if any.
Claims
experience
A record of the client’s claims, usually broken down by insurance
year and type of claim (class of insurance)
Claims ratio
The ratio of claims to premium paid, usually expressed as a
percentage of same
Classes of
short-term
insurance
In terms of the Short-term Insurance Act, insurance companies
have to report to the Registrar of Insurance on a quarterly basis,
and the returns have to be split between various classes of
insurance. These classes of insurance are property,
transportation, motor, accident and health, guarantee, liability,
engineering, and miscellaneous.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Condition of
average
Average refers to a penalty against the client if he is underinsured
at the time of a claim. The client will bear a rateable proportion of
the loss based on the amount by which the property is
underinsured.1
The formula for average is as follows:
Sum insured x Loss
Actual value at risk
Contribution
Defined events
/ Perils
insured
Disclosure of
material
information
Contribution in the business insurance context is when there is
dual insurance. The insurance company will not be liable to pay
more than a rateable proportion of the loss. This often happens
when the bondholder also insures the building.
Defined events and perils insured describe the events or perils
against which cover is provided.
When seeking to purchase insurance, you will need to provide the
insurance company with all material information regarding the
risk. This may be done by completing a proposal form, or where
there is an insurance broker involved, the insurance broker will
prepare broking notes. The broking notes describe the risk and
detail the scope of the insurance cover sought, the first amounts
payable, and the previous loss history.
As the insurance company will base their terms for the insurance
on the information supplied, the client or the client’s broker has a
duty to disclose any information about the risk which a reasonable
person (not an insurance expert) would consider to be material.
Material in this context means information which would have
influenced the terms which the insurance company provided. This
could be the scope of cover, the premium they would have
required, or the first amounts payable they would have required.
The disclosure of all material information is the subject of most
insurance policy court cases. Not unlike a financier needing full
details as to why the client wants the facility, the insurance
company must be given all the facts as to why the client wants, or
needs, insurance.
Duty of care
This is a phrase you will hear in relation to a business insurance
contract. All short-term insurance policies contain a condition
which requires the client to take reasonable care to prevent
losses or accidents.
References to the male gender throughout this Learner’s Study Guide are only to facilitate
reading and should be interpreted to refer to the individual in question, irrespective of gender.
1
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Endorsement
An endorsement is usually issued to record an amendment to the
policy wording, or schedule. Occasionally, instead of issuing an
endorsement, the entire schedule of the policy is re-issued when
there is a change to be made.
Gross profit
Some insurance terminology has a different connotation to what a
business person may normally understand by the term. One of
these is a term used in business interruption insurance: the
insurance of gross profit. In accounting terms, gross profit is the
profit of the business before tax, whereas for the purposes of
business interruption, gross profit is defined as the amount of the
fixed costs and the pre-tax profit of the business.
Indemnity
Indemnity is a term commonly used in insurance. To indemnify a
client means to put him back in the same position that he was in
immediately before the event that resulted in loss or damage. To
be indemnified, he should neither be better or worse off after the
claim than he was before the claim, nor make a profit on a claim.
Indemnity was defined as far back as 1883 in the United Kingdom
court case of Castellain v. Preston, where Lord Justice Bret said:
“… indemnity is the controlling principle in insurance law.” Lord
Justice Bret went on to say: “a fire policy is a policy of indemnity
only … and this means the insured … shall be fully indemnified
but never more than indemnified.” (Castellain v. Preston [1883] 11
QBD 380 CA)
As one cannot put a value on life and limb, policies covering
individuals for death or disablement are not subject to the
principle of indemnity. This includes life insurance and personal
accident policies.
Insurable
interest
You are not permitted to insure anything that by its loss or
damage you do not stand to lose financially. Therefore, you can
only insure something where by its loss or damage, or by a legal
liability action against you, you will suffer financially.
Insured/
Assured
The client who purchases the insurance is usually referred to as
the insured or assured.
Insurer/
Assurer
The insurance company that provides the insurance is called the
insurer or assurer.
Limit of
indemnity
The limit of indemnity is the maximum the insurance company will
pay for any one claim. It does not mean they will pay this amount
for any loss, but it is the maximum they will pay. In accordance
with the principle of indemnity, the insurance company will only
pay what the client loses. The client may not make a profit on a
claim.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Offer and
acceptance
Offer and acceptance form the basis of a legally binding contract.
In the context of insurance, the client requesting a quote does not
constitute an offer, and most proposal (application) forms state
that the insurance company is not bound to accept the risk once
the proposal form has been completed. This is, however, the
beginning of an offer.
In practical terms, to acquire a portfolio of insurances for a
business enterprise, the client or their broker will describe the risk
they wish to transfer (the insurance they wish to purchase) to the
insurance company. This is done by means of a proposal form, or
if the client has a broker, the broker may compile broking notes.
Based on this information, which forms part of the contract, the
insurance company prepare their terms at which they will accept
the risk. The terms include the scope of cover, the premium, and
the first amounts payable. Special terms may be required for
certain risks, such as what fire or theft protections must exist for
the cover to be valid in advance of a possible claim. These terms
may differ from the quotation requested; for example, the
insurance company may require higher first amounts payable
than those requested by the client.
So, the offer starts with the client and is only completed when the
insurance company state what their terms are and what premium
they want for the risk.
If the client accepts the terms, subject to all of the other
requirements for a legal contract being present, you then have
offer and acceptance, and a legally binding contract of insurance
will come into force.
If the client does not accept the insurance company’s terms and
suggests alternatives, such as a lower first amount payable, this
amounts to a counter offer. If the insurance company accept the
counter offer, then a legally binding contract of insurance will
come into force.
Perils
Commonly referred to as “nature risks”, these are risks that are
basically nature inflicted, for example, storms and earthquakes.
However, the meaning of the term has recently been expanded to
include fire and explosions.
Policy
document
The policy is a legal document which provides evidence of the
insurance contract in force. There are a few terms used to
describe the components of a policy. A policy is made up of the
schedule and the printed wording, and should be read together.
Proximate
cause
In its simplest form, the proximate cause of a loss is the dominant
cause without any other intervening causes. It is often defined as
the uninterrupted chain of events between cause and effect, the
cause being the event and the effect being the loss or damage.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Recovery
When a client effects a successful right of recourse against
another party or an insurance company does so in terms of a
subrogated right of recourse, this is said to be a recovery.
Reinstatement
value
conditions
“Re-instatement value conditions” is a term you may often hear in
the insurance environment. Essentially, when the re-instatement
value condition applies, the insurer will replace or re-instate the
insured property with similar property to that lost or damaged, but
not with property more extensive than or superior to the property
lost or damaged when new.
Sometimes, payment on a market value basis will not indemnify
the client. An example is a partial loss of a building by a fire. It
would not be feasible to try to obtain second-hand building
materials of the same quality and age as those destroyed by the
fire. Consequently, the only way to re-instate the building will be
to use new materials, but not more extensive or superior to those
destroyed when they were new.
If the insurer elects to re-instate, they are obliged to do so even if
it is more expensive than they thought it would be or even if the
cost of re-instatement exceeds the sum insured.
Re-insurer/Reassurer
Insurance companies do not keep all of the risk which they
accept. They too purchase insurance to limit their exposure on
any one individual risk or an accumulation of risks by an individual
event. This is then termed re-insurance, or re-assurance.
Providers of re-insurance, or re-assurance, are called re-insurers.
As insurance companies grow and their balance sheets
strengthen, they tend to keep more risk and purchase less reinsurance.
Right of
recourse
Where another party has been responsible for loss or damage to
the client, there may be a right of recourse against the other
party. This right of recourse allows the client to recover their loss
from the other party.
Subject matter
of contract
The client’s insurable interest in the subject matter
Subject matter
of insurance
Subject matter in a business insurance context is the subject of
what is insured. This could be material damage to property, an
event giving rise to a legal liability, or loss of a legal right. For
example, the subject matter of a fire policy may be buildings,
plant and machinery, stock, tenants’ fixtures and fittings, or office
contents.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Subrogation
Where loss or damage is caused by a third party, the client may
have a right of recourse against such a person for the loss or
damaged caused by him. Subrogation is the term used to
describe the assuming or taking over of the client’s right of
recourse by the insurance company. At law, the insurance
company is entitled to such right of recourse once they indemnify
the client. The subrogation clause in a policy amends the
common law position to the extent that they may exercise this
right of recourse before the insured is indemnified. In terms of this
clause, the client must do and permit all such things to be done
as may be necessary to give effect to the right of recourse, at the
expense of the insurance company.
Sum insured
This is the total value of the insured property as estimated by the
insured. Most policies that rely upon a sum insured as the basis
of coverage impose the condition of average to penalise the
insured if the sum insured is less than it should be.
Territorial
limits
The territorial limits describe the countries in which the insurance
is valid. Loss or damage to any insured property which occurs
outside of the territorial limits would not be covered.
2.4
Insurable interest (AC4)
The subject matter of the contract is the client’s insurable interest
in the subject matter insured.
Gambling
Insurable interest is necessary to distinguish an
contract from a gambling wager. Although some
gambling such as casinos, horse racing, and the lotto
all other forms of gambling are illegal and,
unenforceable.
insurance
forms of
are legal,
therefore,
Therefore, to distinguish an insurance contract from a gambling
wager, there must be insurable interest. This means the client
must stand in relation to the subject matter to be able to sustain a
financial loss or loss of legal right, which is capable of being
quantified.
Marine
Insurance Act
(UK)
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This was defined in the United Kingdom Marine Insurance Act of
1906:
… where the assured is so situated that where the happening of
the event on which the insurance money is to become payable
would, as a proximate cause, involve the assured in the loss or
diminution of any right recognized by law or, in any legal liability,
there is an insurable interest in the happening of that event to the
extent of the possible loss or legal liability.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Insurable
interest
In other words, a person has insurable interest when he has a
financial interest
in any tangible physical property, whereby if the property is lost,
destroyed, or damaged, this would cause him a financial loss, or
in an event which may result in a third party being able to claim
financial compensation from them in a court of law.
Example
Say you knew someone who was a careless driver.
You cannot insure his car hoping to make a profit on
a claim if he has an accident in which the car is
damaged.
However, if you had lent him money to buy the car,
then you can insure it, but you would only be entitled
to recover the value of the balance outstanding to
you. The outstanding balance is your only insurable
interest in the car.
Short-term
insurance
In short-term business, and personal, insurances, insurable
interest must exist at the time of taking out the insurance and at
the time of loss or damage.
Marine
insurance
In marine insurance, insurable interest need only exist at the time
of the loss. This is because the interest in the subject matter
insured may change during a voyage.
Life insurance
In life insurance, the opposite applies, and insurable interest need
only exist at the time the policy is taken out.
Care, custody,
or control
It is possible to have an insurable interest in property other than
your own, as when someone else’s property is in your legal care,
custody, or control, because you will be held liable if the property
is damaged in your care, custody, or control and consequently
would suffer a financial loss. The insurable interest in this case is
not so much in the property, but in the possible legal liability of the
business arising from damage to the property whilst in their care,
custody, or control.
Example
You own a shop, and you purchase all your stock
from one supplier. If the supplier has a fire, you will
suffer loss of sales and consequently a loss of
profit.
In this case, there is an insurable interest in your
loss of profit, flowing from damage to the supplier’s
property. This can be covered under a supplier’s
extension on a business interruption policy.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Re-insurance
It follows that the liability of the insurance company to pay claims
gives them an insurable interest to insure themselves, and this
they do via a re-insurance policy.
2.5
Events and risks that can be insured and the
advantages of insurance in relation to a specific
business entity (AC5)
Fire damage to
the physical
assets of the
business
Businesses may have many millions of rands tied up in the assets
needed for the business. Fire damage can be catastrophic, and
total losses are not uncommon. Without the money to replace
these assets, the business will not be able to continue to earn
profits for the stakeholders or have money to pay the banks for
loans taken in connection with the business.
By insuring the assets against loss or damage by fire, the
business ensures that the productive assets of the business will
be replaced after a fire, thus, protecting the stakeholders’ capital
and loans provided by the banks.
Business
interruption
Say a fire totally destroys the premises of a business.
The business has fire insurance on the assets and business
interruption following fire damage to the assets of the business.
The fire insurance will pay for the damage to the assets. During
the period that it takes to repair or reinstate the damaged
property, the business continues to incur expenses (these are
referred to as fixed costs and are all charges which will be
incurred whether the business has income or not), and no profit is
earned.
Business Interruption policies cover the client for the continuing
expenses (the fixed costs) and pre-tax profit for the period that
the results of the business are affected. The fixed costs and pretax profit combined are referred to as gross profit.
The insurance is not limited to the period required to re-instate or
repair the damaged property, but includes the period it will take to
reach the same level of income as before the loss, including an
adjustment for the anticipated trend or seasonal trade of the
business. The maximum period for which the insurance company
will pay for the loss of business income is referred to as the
indemnity period.
The advantage to the business entity is that they would be able to
continue to pay all of the fixed costs of the business and have
insurance monies to replace the pre-tax profit which the business
would have earned.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Legal liability
The very nature of business means that any person or company
in business faces potential liabilities. In some cases, the potential
legal liability may be so great that it has no bearing in relation to
the earning potential of the business.
Legal liability insurance is available to protect business entities
against certain liabilities. Legal liability for damage to property or
injury to third parties is the most common. This can include
general public liability at the premises and work away, tenants
liability, products liability, or liability for defective workmanship.
Example
A small employment agency rents an office in a fourstorey building. The agency anticipates annual
revenue of R500 000. The building has a
replacement value of R3 m and is occupied by six
other companies with stock, computers, and other
property worth R2 m.
If a fire caused by the employment agency renting
one of the offices completely destroys the building,
the employment agency may be liable for the
building and the loss of property suffered by the
other tenants. This is an exposure of R5 m or 10
times the employment agency’s anticipated total
annual revenue.
You may think businesses cannot be held legally
liable if due to an error, they burn down the building
they rent. Unfortunately, the truth is that they can be
held liable. It depends on the cause of the fire. The
event may seldom or never occur, but if it does, the
amount involved can be astronomical and would
mean the demise of the business. The fact that this
may never occur in the life of a business is taken
account of in the premium rate charged. High legal
liability limits of cover can be obtained for a relatively
small premium.
Legal liability insurance protects the business
against possible catastrophic financial losses arising
from legal liabilities caused during the conduct of the
business.
Death of a key
person in the
business
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Often a small enterprise (and sometimes even larger businesses)
is dependent on certain key individuals. This may be for reasons
of their intellectual property or marketing ability. If the key person
were to die or be disabled, the business could suffer a financial
loss of reduced sales or additional recruitment/training costs to
find a suitable replacement.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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This gives the business an insurable interest in the life of the key
person, and they can effect a key person life assurance policy on
the life of the person concerned. The proceeds of the policy would
be payable to the business to enable them to employ a suitable
replacement person. A banker or financier may insist on such a
policy, should the business be dependent on a small number of
key people.
Such a policy would protect the business against financial losses
arising from the death or disability of a key person.
Partnership
insurance
Two or three individuals each with contributory but different skills
enter into a partnership, and all have equal shares in the
business. Should one of the partners die or be disabled, his
estate would still have shares in the business but be unable to
perform the function for which he was selected as a partner.
It would be preferable for the remaining partner(s) to pay the
disabled partner, or the deceased partner’s estate, the value of
his share in the business, leaving the remaining partner(s) in
control of the business.
To achieve this, a whole life policy is used with the beneficiaries
being in favour of the other partners. Say there are three partners:
Partners A, B, and C. Three policies for one-third of the value of
the business are taken out on the life of each partner, but the
beneficiary in each case is not the life assured but the other two
partners. The beneficiaries on the policy on Partner A’s life would
be Partners B and C, and so forth.
This type of insurance protects the partner(s) against having
shareholders who have no knowledge of the business in the
event of the demise of one of the partners.
2.6
Business events and risks that cannot be insured (AC6)
Trade risks
Insurance companies do not generally insure trade risks. Trade
risks refer to events such as a slump in the market due to adverse
economic circumstances, fluctuating interest rates, fluctuating
exchange rates, or changes in Government policy and the impact
which this may have on the business.
Human error
A trade risk is also a risk that relates directly to the activities of the
workers. If a worker damages something he is working on, that is
a risk the business must suffer themselves. Therefore, all workers
must be trained correctly to prevent suffering financial loss due to
the inability of the worker to perform his duties correctly. This is
sometimes referred to as “human error”.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Risks
excluded by
insurance
contracts
All short-term insurance policies exclude the following:

War risks

Riots, strikes, and public disorder

Nuclear risks

Asbestosis

Computer losses related to date recognition failure
War risks
War risks are excluded as the private sector
deems them to be a risk outside of that which can
be underwritten. Government have a fund in terms
of the War Damages and Compensation Act 85 of
1976, from which victims of war damages are
compensated. The concern is whether in reality
Government would have such funds. The
exception to this is marine policies that can cover
war, but only for the sea voyage part of the journey
and not any inland part, for example, transport
from the exporter’s factory to the port.
Riot,
strikes,
and public
disorder
After the 1976 riots and following sanctions by the
international community, re-insurers withdrew
cover for politically motivated riots, forcing
insurance companies to withdraw cover from
businesses and private individuals.
In response, Government at the time formed the
South African Special Risk Insurance Association
(SASRIA), who, in return for non-refusable and
non-cancellable cover, was granted the sole right
to underwrite political riot cover in South Africa.
SASRIA, therefore, had a monopoly on this type of
insurance.
Because of the difficulties of proving whether or not
a riot was politically motivated, SASRIA’s
monopoly was eventually extended to all riot,
strike, and public disorders within the Republic.
Namibia followed suit with the introduction of
NASRIA, but with substantially lower limits of cover
than SASRIA.
SASRIA cover is obtained from the insurance
company who issue the fire policy. The insurance
company act as SASRIA’s agent in so far as the
issuing of the policy and collection of premium is
concerned.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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2.7
Nuclear
risks
Nuclear risks are also excluded from all short-term
insurance policies in total. This means loss of or
destruction or damage to property, all
consequential losses, and legal liability. This is
because no insurance company can carry such a
large risk.
Asbestos
Due to insistence by re-insurers, an absolute
exclusion has been introduced relative to the use,
application, or working with asbestos. This is due
to the large value of claims suffered since 1950
arising out of the mining of asbestos, which
subsequently caused the worker to suffer from
asbestosis.
Computer
losses
Due to the risks arising from computers or any
other electronic devices failing to recognise the
correct date, and also at the insistence of reinsurers, all insurance policies now exclude loss or
damage related to a computer not being able to
action a date. This materialised due to the change
in the millennium and the fact that certain
electronic devices were controlled by a date
recognition system. The new computer age has
reduced this risk, but insurance coverage is still not
available.
Claims reserves and the effect these have on
the payment of a claim (AC7)
Insurance companies have to maintain a minimum solvency
margin which is laid down by the Short-term Insurance Act and
the Long-term Insurance Act. When a claim is reported, the
insurance company has to raise a reserve in their accounts for
the claim, which negatively affects their solvency margin.
Solvency
margin
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A solvency margin is the amount of money the insurance
company must have available to settle claims at any given time.
The formulae stated by the FSB in the Acts differ between the
short- and long-term insurance companies, but generally must not
be less than 15% of their premium income. So if the insurance
company is receiving a premium income of, say, R1 m per day,
they must have at least R150 000 per day available to settle a
claim that may occur anytime in the future during the life of the
policy cover.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Under
reserving
This is why it is so important for the insurance company to obtain
as close as possible an estimate of the claim value. If the
estimate is too low, the insurance company will have under
reserved for the claim and could declare higher profits than they
could realistically make.
Over reserving
If the reserve is too high, it will impact on this year’s results as the
funds will be held in reserve, rather than being able to be
declared as profit. In addition, the loss ratio of the company will
appear higher than it really is, which could negatively affect the
share price of the insurance company.
Re-insurer
In certain circumstances, the insurance company may need to
notify their re-insurance company of the claim. Where this is the
case, the re-insurer will also require the estimate to enable them
to raise a claims reserve for the claim.
Under reserving or failure to notify re-insurers when appropriate
will, at the least, lead to delays in claims settlement and could
give rise to the insurance company having difficulty recovering
from their re-insurer.
It is important to note that the contract of re-insurance is between
the insurance company and the re-insurance company. Failure of
the re-insurance company to pay does not affect the insurance
company’s liability to indemnify the client, except of course to the
extent that they are able to do so out of their own reserves.
Claim
reserving
Claim reserving is rather like you saving to go on holiday. You
know you will be going on holiday, but you may not have decided
where to go or for how long. You budget and hope that when you
need the money, you have enough.
The insurance company know that they will have to pay a claim,
but they do not know when or how much. So the Acts make it
compulsory for the insurance company to budget a minimum
amount (basically 15%) and, when the claim actually happens, to
make sure that their estimate is adequate and to transfer the
budgeted reserve into a bank call account, waiting for payment to
the insured.
2.8
Auditing books of business to provide claims
statistics (AC8)
Claims
statistics
Accurate claims statistics are vital to managing risk. By studying
the pattern of previous losses, it will point to possible remedial
action being required as a risk management or loss control
measure.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Look at the claims by class of insurance, by branch (if the client
has more than one branch), by type of asset, by individual
responsible (if internal), and by fault (whether it was the client’s
fault or not, which could indicate whether there are any recovery
possibilities).
Frequent small
losses
Business often suffers losses, such as shoplifting, staff pilferage,
miscalculations, accounting errors and straight theft by persons
unknown. These losses are regarded as a ‘trade risk’ to the
business. The risk of trading that has to be built into the sale price
of the product. If businesses could curtail these trade risks, the
end sale price could be reduced, or the Stakeholders could earn a
slightly larger return on their investment. Insurance is not
designed to compensate the business for trade losses. Therefore
trade losses must be absorbed by the business and taken into
account when preparing the Financial report.
There are, however, other losses that under certain
circumstances could be considered an insurance risk. A minor
motor accident where the business entity decides that it is not
worth their while to submit an insurance claim. The repair costs
could be either less than the policy first amount payable, or not
much higher. Insurance companies have years of experience of
insuring businesses and have a reasonable understanding of
what risks the business is exposed to. Therefore insurance
companies tend to force the business client to look after their risk
by imposing a first amount payable at a level to force the
business to be more careful in their activities.
Losses remain losses unless an insurance company actually
settles the loss in terms of the insurance policy. Thereafter the
loss is termed a claim. A claim is a loss paid for by an insurance
company. When an insurance company receives numerous, or
frequent, notifications of losses, where some convert into claims
due to settlement, the insurance company are likely to increase
the first amount payable to force the business to be more careful
and suffer losses within their own financial ability.
From a businesses risk management perspective, self-funding by
the client in respect of smaller losses is a far more efficient way of
financing the risk. Insurers will always include a provision for
anticipated smaller claims into their premium for the next year. So
it is cost effective for the business to retain the smaller losses
rather than transfer these to an insurer and suffer an increase in
the premium payable.
Same type
losses
You may identify a spate of theft claims either at one branch or at
several branches involving the same type of assets. This could
lead you to look into improving security at the branch with the
problem or, if there has been theft at several branches, whether
there is a similarity in the type of asset being stolen.
If five branches had laptop computers stolen, you could change
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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company policy on laptops to make branches responsible for
higher first amounts payable, impose penalties if they are stolen
from a vehicle, or advise branch managers to tighten control.
If you have a client with a large fleet of vehicles, looking at fault,
how many of the claims were your client’s fault, and how many
were the fault of a third party? Are recoveries being pursued?
Maybe the client has all drivers undergo advanced driver training,
but the majority of claims are not the drivers’ fault. You could
increase the first amounts payable if the recovery rate is good.
Run a check to see whether there are drivers who have been
involved in regular claims. Find out why and what action can be
taken.
Recoveries
Recoveries are important because even if the insurer has paid the
client, the claim still reflects in the client’s claims experience and
may affect their premiums and insurance terms going forward.
The claims experience is reduced by recoveries made by the
insurance company. The insurance company also analyses the
claims history, both when they quote and during the currency of
the policy, but particularly before providing renewal terms. They
too will want to cut out frequent small losses which merely serve
to erode the premium without providing any real value to the
client. Insurance companies deal with this by underwriting the
risk, imposing higher first amounts payable or having special
requirements such as fire or theft protections or the use of
carriers to convey money.
Corrective
Actions/
measures
Businesses that suffer small losses, or trade risk losses, must
consider what their industry experience is. Retail establishments
traditionally experience up to a 3,0% trade risk loss due to
shoplifting and staff pilferages. If the retail business suffers a
higher loss ratio, to purchases, of 3,0% they should investigate
why. Is the security system inadequate, or are people just not
passing goods over the counter for scanning? Engineering
concerns suffer, on average, trade risk losses of up to 5,0%. Are
goods received records recording each item received correctly, or
is the delivery note from the supplier just signed without a
thorough check being undertaken?
Business entities must make sure that their record systems are
correct and checked regularly. When viewing insurance risks the
business must look at their claims, losses that are paid by an
insurer, and establish if there is anything they can do to reduce
the losses. Are the vehicle drivers having too many small
accidents, are goods falling off delivery trucks, is the fork lift driver
mis-judging where the forks must go when collecting stocks from
the warehouse, and so on. Each business entity is subject to its
own trade risks that could become an insurance claim.
Once the business has established a pattern, either by
themselves or following an investigation by a risk manager, then
the business can decide how best to deal with these small
losses/claims. Increasing the first amount payable is the
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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insurance companies usual method, but business can decide to
apply for this increase, for a small reduction in the premium
payable. Alternatively the business can decide that they will
institute more training or impose a first amount payable against
the employee who causes losses. Many business impose a first
amount payable against a vehicle driver to make the driver more
risk conscious of how they are driving.
2.9
A captive market/portfolio and the role of both
the intermediary and the insurance
company (AC9)
Corporate
companies
At times, the larger corporate companies began to feel the
conventional insurance companies were not meeting their needs.
Premiums were volatile from one year to the next, cover became
more restrictive, and as the value of the large mining and
industrial companies’ assets and profits rose, the ability of the
insurance companies to take such large risks became impeded.
In insurance terminology, this is referred to as a lack of capacity.
Captive
insurance
company
To counter this, corporate companies began to register their own
insurance companies. These companies were insurance
subsidiaries of non-insurance parent companies and were only
licensed to underwrite all or part of the parent companies risk.
Such insurance companies are known as captive insurance
companies.
Advantages
Some of the advantages of a captive are that it gives the client
direct access to the re-insurers and they can select which risks of
the parent they wish to retain and which risks to transfer outside
of the captive. Costs can be reduced, and the captive will retain
the investment income and any profits which accrue.
They can also be used to underwrite cover which the
conventional market won’t provide, such as asbestosis or date
recognition, and can be a means of diversification for the parent
company. They are also used by multinational companies as part
of their global risk management and risk financing tools.
Disadvantages
Captives can have disadvantages, not the least of which is the
regulatory compliance required of an insurance company and the
capitalisation requirements (they can be expensive to start up).
Moreover, a conventional insurer will have a greater spread of
risk. A further challenge when the captive is used to provide cover
for risks not underwritten by a conventional insurance company
can be how to rate the risk.
Third-party
risks
A move away from the traditional use of a captive insurance
company to only underwrite risks of the parent company began
when some companies saw opportunities in having a captive to
underwrite third-party risks as this would be leveraged from the
parent company’s client base.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Examples of this were furniture chains that could provide both
long- and short-term insurance to clients buying goods on credit
and TV rental companies wanting to provide risk cover to the
client renting the TV. The Registrar of Insurance granted limited
licences to these captives to underwrite only the risk related to the
goods or services provided by the parent company.
As these vehicles became more popular, the conventional
insurance companies realised they were losing a significant
amount of business to them. Some of the conventional insurance
companies devised ways to participate in this emerging market
and began to offer alternatives to clients who did not wish to go
the route of registering their own insurance company.
Rent-a-captive
The rent-a-captive concept developed by offering the client the
use of the insurance company’s licence and infra-structure,
enabling the client to achieve the objects of a captive without the
usual costs involved. The drawback of rent-a-captive is that the
client does not own the captive. If the insurance company were to
go insolvent, the client would lose any of their accumulated funds
in the captive. Moreover, a rent-a-captive is not transferable to
another insurance company.
Cell captive
To overcome the disadvantages of rent-a-captive, insurance
companies introduced the cell captive. The difference with a cell
captive is that through use of a shareholding structure, each
client’s funds are kept separate. A number of the major insurers
have created separate risk financing companies who provide
these vehicles. However, they often do not wish to provide claim
services on the day-to-day administration of claims.
Intermediary
The intermediary can assist the client both with the establishment
of a captive or cell captive and with the day-to-day claims
administration which may arise.
The intermediary then acts as manager of the captive, or cell
captive, and charges an administration fee to undertake the work
normally undertaken by an insurance company when they provide
traditional insurance coverage.
This is a new method of the intermediary earning an income, over
and above their commission, which they lose when the corporate
client uses a captive, or cell captive, to underwrite a risk.
1. What is the concept of insurance?
2. Explain how insurance plays a role in a business enterprise.
Self-test 2
3. Explain ‘insurable interest?
4. When must insurable interest apply in respect of a marine
policy?
5. Material damage, legal liability and motor insurances are
common business entity insurance covers arranged. Are there
any other forms of business insurance that can be arranged?
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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6. What business events cannot be insured?
7. Explain claim reserving in your own words.
8. How important is it to audit the books of a business to secure
claims statistics?
9.
Why do large corporations consider arranging some form
of captive insurance?
Competency
Competency
check and
progress
indication
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Check
SO2
I can explain the concept of insurance and
pooling in relation to business enterprise risk
management

AC1
I can describe the role of insurance in relation
to business enterprise financial planning.

AC2
I can apply the terminology used in the
insurance sector.

AC3
I can explain the concept of insurable interest
as applied to a specific business entity.

AC4
I can identify the five events and risks that can
be insured.

AC5
I can explain the advantages of insurance in
relation to a specific business entity.

AC5
I can identify two business events and risks
that cannot be insured and explain why such
risks are insurable.

AC6
I can explain the concept of claims with
reference to the effect these have on the
payment of a claim.

AC7
I can explain the process auditing books of a
business to provide claims statistics.

AC8
I can indicate the action that can be taken if
claims statistics are unsatisfactory

AC8
I can explain the concept of market/portfolio
with reference to the role of the intermediary
and the insurance company.

AC9
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
UNIT 3
Contract of insurance in a business entity (SO3)
After completion of Unit 3, you should be able to do the
following:
Specific
outcomes for
this unit

Explain the purpose of a contract whit reference to an
actual policy for a business entity

Explain the purpose of portfolio

Indicate the characteristics of a portfolio for an authentic
business enterprise

Explain the term endorsement and give examples that are
identified in a business contract

Explain the rights and responsibilities of the insured in
terms of a complex business insurance contract
Study the material for each sub-unit before moving onto the
activities.
3.1
The purpose of a contract with reference to an
actual policy for a business entity (AC1)
Insurance
contract
All contracts have rights and obligations. In an insurance contract,
the client has, inter alia, an obligation to pay the premium.
However, if the event insured against occurs, the client has a right
to be indemnified.
The usual purpose of a contract of insurance is to fill a need
identified in the client’s financial planning. Most insurance
contracts have the purpose of protecting the client against a
possible financial loss. In other words, they provide a form of risk
financing. Some insurance contracts may have an investment
element to them.
The policy document is not the contract, but evidences the
contract entered into between the client and the insurance
company.
Multi-peril
policy
It is possible to enter into an insurance contract for a business,
covering several types of insurance in the same contract.
These are called composite or multi-peril policies and are
common for small to medium size companies. In South Africa, we
have a generic policy called Multimark III ®, which is available
from the general short-term insurers. With this one policy, the
client can obtain most of the classes of short-term insurance
required by a small to medium size business.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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This includes material damage insurance (assets), business
interruption, legal liability, and insurances of the person and motor
vehicles. Such a contract of insurance would serve a very broad
purpose.
Multimark III ®
You should have secured a copy of the Multimark III ® Policy
wording and schedules.
3.2
The purpose and the characteristics of a
portfolio for an authentic business enterprise
(AC2)
Portfolio
In this context, a portfolio is a range of insurance products
identified in the financial planning of a business, as necessary to
protect the business from financial loss.
Risk profile
The purpose of a portfolio is to examine all the
areas where the business is exposed to risk and
to plan an insurance programme which
addresses the risk financing needs and the risk
profile of the business. By risk profile, one means
the nature of the risk as well as the client’s
attitude to risk. Certain clients may be risk
averse, and in that case, it would not be
appropriate to design an insurance portfolio with
high levels of self-insurance, that is, higher first
amount payables.
By risk profile one means, the nature of the risk
as well as the client’s attitude to the risk, referred
to as the ‘moral hazard’. A moral hazard is
directly related to the clients attitude to protecting
the property and their desire not to suffer an
insurance claim. Clients who have no regard for
the safety of persons, making sure that the
security of systems work correctly or that the
stocks are stored in a structured manner, is
asking for a loss and is therefore regarded as a
bad moral hazard by the insurance industry.
Hence the need for an insurance company to
conduct inspections of the business to make sure
that the business management have an interest
in preventing losses, and consequently claims.
Insurable
risks
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The characteristics of the portfolio are that it
should address all of the insurable risks to which
the business is exposed, having regard to the
cost effectiveness of transferring the risk relative
to the likelihood of the risk happening, and it
should take into account the business
enterprise’s philosophy towards dealing with risk.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
The portfolio will be characterised by short-term and long-term
insurance and within larger businesses may include employee
benefits and medical aid.
Short-term
insurance
Long-term
insurance
Material
damage –
Assets
Examples are buildings, plant and machinery,
stock, fixtures and fittings, office contents,
computers,
PABX and other
electronic
equipment, money, and motor vehicles. The risks
insured against could be fire and allied perils,
theft, all risks, machinery breakdown, or
electronic breakdown.
Business
interruption
Depending on the nature of the business, loss of
gross profit (fixed costs and pre-tax profit), loss
of revenue, loss of gross rentals, or accounts
receivable can be insured. The insured perils are
mostly only against damage to the insured
assets by fire and allied perils.
Liabilities
This can include, depending on the nature of the
business entity, general public liability, defective
workmanship, products liability, employers
liability, motor liability, or professional indemnity.
Bodily injury
This covers accidental death or bodily injury to
directors and employees. The cover can be
based on a capital sum or on the earnings. The
cover is usually arranged on a twenty-four hour
basis, but can be restricted to business hours
only at a reduced premium.
Motor
The motor cover would cover the accidental loss
or damage to the motor vehicle and for any
liability arising out of its use. This is known as
comprehensive motor cover. If the cash flow of
the business permits, low value vehicles may be
insured for third-party liability, fire, and theft only
as this is much cheaper.
This could be characterised by the following:

Individual life and disability

Key man

Partnership

Funeral insurance

Retirement annuity
Employee
benefits
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
Group life and disability

Group pension or provident fund
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Medical aid
Individual or group
3.3
Endorsement (AC3)
Alteration
Sometimes the client may wish to alter an insurance contract
during the period of insurance. They may have acquired
additional buildings or another plant and need to increase the fire
sum insured. Or the amount of cash collected has increased, and
they have to increase the limit on their money cover. Or they have
acquired a new vehicle, and this must be added to the policy.
When this happens, the insurance company may note the change
by an endorsement.
Endorsement
The insurer may wish to change something in the printed wording
of the policy, for instance, introduce an additional exclusion
because of a deteriorating claims experience. This could be done
by endorsement. It should be noted that the insurer would usually
only introduce changes at the renewal of the policy.
Override
printed
wording
Endorsements override anything in the printed wording of the
policy. This is why endorsements usually note the change being
effected and then say, “Subject otherwise to the terms,
exceptions, and conditions of this policy”.
Example
The following is an example of an endorsement issued changing
the theft limit from R5 000 to R10 000.
It is hereby declared and agreed that with effect from the 15
March 2000, the limit of R5 000 in respect of the premises
situated at 79 Second Street, Your Suburb, City/town is increased
to R10 000.
In consideration of the foregoing, there is an additional premium
of R2 000 due the company for the period 15 March 2000 to
renewal date, being 30 June 2000.
Subject otherwise to the terms, exceptions, and conditions of this
policy.
Signed in Johannesburg on this the 25th March 2000.
…………………….
3.4
Rights and responsibilities of the insured in
terms of a complex business insurance contract
and the need for reinsurance (AC4)
Rights of the
insured
The main right of the insured is to be indemnified or compensated
in the event of an insured loss.
With regard to fire policies, the client has the right to re-instate
property on another site subject to certain conditions, if reinstatement value conditions apply.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Various brands and labels clauses give the client the option first
to either purchase any salvage or have their brands labels
removed from any salvage prior to their disposal by the insurance
company.
Responsibilities of the
insured
The insured has the following responsibilities:

Duty of disclosure

Duty of reasonable care

Premium payment

Notification of claims

Assisting with recoveries
Disclosure
Insurance contracts are based on the information
supplied to underwriters. As the client would
naturally have a far more intimate knowledge of
their business than the insurance company, it is
vital that the client disclose all information prior to
inception of cover, renewal, or during the insurance
period which may influence the insurance
companies appreciation of the risk (that is,
information which a reasonable person would have
considered material).
Examples of material information could be
hazardous aspects of the business, such as
processes, new products, activities or services,
signing of leases or contracts which extend legal
liability beyond normal common law, new
premises, threats from other parties, third-party
property in their custody, hiring of plant and
equipment, past claims history, and any criminal
convictions relevant to the subject matter of the
insurance.
You do not generally have to disclose things that
reduce the risk to underwriters or are common
knowledge. It is, however, safer to err on the side
of caution and inform the insurance company of all
aspects of the business because many claims
have been repudiated on the grounds of nondisclosure of material information.
Moreover, insurance companies buy re-insurance
when the risk is too large for them to underwrite on
their own. The information disclosed by the client
to the insurance company is also disclosed by the
insurance company to the re-insurance company
when they buy their re-insurance cover.
The re-insurance company may repudiate a claim
by the insurance company on the grounds of nondisclosure, which in turn may cause the insurance
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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company to adopt the same stance and repudiate
the client’s claim.
Insurance companies also have automatic reinsurance facilities, and these often exclude certain
activities. If the client fails to disclose a hazardous
activity excluded on the insurance company’s
automatic re-insurance arrangements, this again
may cause an insurance company to repudiate a
claim.
Duty of
reasonable
care
The client has a duty to take reasonable steps and
precautions to prevent accidents or losses. In other
words, the insured must act as if not insured.
Premium
payment
The client has the duty to pay the premium on or
before inception of the cover. Failure to do so will
prejudice the cover. Premiums can be payable
monthly or annually. Insurance companies do
charge extra for monthly premium payment
facilities.
Notification
of claims
The client has a duty to report claims to the
insurance company as soon as reasonably
possible. Claims involving theft or loss of property
have to be reported to the South African Police
Services (SAPS) immediately.
Assisting
with
recoveries
The client has a duty to assist in the recovery of
any lost or stolen property if located after payment
of any claim. The insured must assist the
insurance company in enforcing any rights to which
they may become subrogated, whether before or
after the client has been indemnified.
1. Is an insurance policy a legally enforceable contract?
2. Name the three main types of insurances that will make up a
typical portfolio of a business.
Self-test 3
3. What is the purpose of an endorsement?
4. List the main responsibilities of the insured.
Competency
Competency
check and
progress
indication
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Check
SO3
I can explain the purpose of a contract whit
reference to an actual policy for a business
entity.

AC1
I can explain the purpose of portfolio.

AC2
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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I can indicate the characteristics of a portfolio
for an authentic business enterprise.

AC2
I can explain the term endorsement and give
examples that are identified in a business
contract.

AC3
I can explain the rights and responsibilities of
the insured in terms of a complex business
insurance contract.

AC4
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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UNIT 4
Negotiating an insurance contract to meet the
needs of a selected business enterprise (SO4)
After completion of Unit 4, you should be able to do the
following:
Specific
outcomes for
this unit

Identify the need for an insurance in the financial planning
of a business

Analyze a business entity risk and insurance need with a
view to negotiating insurance to meet the identified need

Explain the need to investigate an insurance contract with
two different insurance institutions

Identify exclusions in a contract

Indicate why exclusions are necessary and whether they
re acceptable to a business entity

Explain the terms of a contract

Identify specialised insurance required to meet the needs
of a particular business enterprise and reasons are given
to explain why the identified risks are important to the
particular kind of business
Study the material for each sub-unit before moving onto the
activities.
4.1
Identifying the need for insurance in the
financial planning of a business entity (AC1)
Identify the
risks
In order to identify the insurance needs of a business enterprise,
you need to identify the risks the business entity faces: what the
possible consequences of those risks may be, in financial terms,
and how the risk is best handled and controlled. This is a risk
management approach to identifying the scope and level of all
retained and transferred risks. International, and a majority of
local, insurance brokers have extensive risk questionnaires that
can identify most of the risks associated with businesses.
Retail shop
Jane Smith has requested that you arrange insurance coverage
for her retail shoe shop.
The shop will have assets such as fixtures and fittings, till, stock,
cash, and maybe a motor car or small delivery vehicle. They rent
the premises they are in and have four other shops in the
complex, each carrying a different trading name. The shops are
run by the owner, six sales assistants and a driver.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Short-term
insurance
You would need to establish a number of facts, relative to the
business of retailing shoes, before looking at the type of
insurances most suitable for the business.
Fire
Typically, the shops would need fire and allied perils on the
replacement value of the fixtures and fittings and on the cost price
to the shop of the stock.
Theft
Theft cover at a limit for any one burglary
Business
interruption
They will need business interruption cover to cover them against
loss of gross profit in the event of damage to the assets by any of
the perils insured against on the insurances covering fire and
allied perils. The sum insured should represent the total of the
businesses fixed costs and the pre-tax profit for a minimum of 12
months.
Money
Money cover for a limit for any one claim which should represent
the maximum amount of money on the premises or in transit at
any one time
Glass
The lease on the premises most likely holds them responsible for
any damage to that part of the premises occupied by the shops,
including the shop front window. Glass insurance will provide
cover for the shop front window and the sign writing and any
illuminated signs. The sum insured on the glass must be based
on the total replacement cost of all the fixed glass.
Public liability
Because they are renting premises and will have the public in
their shop, they will need general public and tenants liability
cover. Limits for public liability should be high. Say a fire starts in
the shop which is proved to be their fault. The whole building
could burn down and all the other tenants would lose both the
contents of their shops and their future income stream. The limit
of cover would depend on the value of the building and the shops
which occupy it, but R10 m to R20 m for any one occurrence is
not extreme. Public liability insurance limits also include the costs
of legal representation at any court.
Bodily injury
There may be a need for personal accident cover for the owner
and the staff.
Motor
The motor vehicle may need to be insured comprehensively or
only for third party fire and theft, depending on its value and the
cash flow of the business.
Employee
benefits and
long-term
insurance
It is unlikely that there will not be enough employees to consider
group life and disability, or group pension or provident funds.
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So consider the need for individual life and pension cover. The
owner may need individual life cover to secure loans on the
business, and the staff may need life cover. If there is no
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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company pension fund, the owner and the staff may wish to
consider separate retirement annuity policies. Funeral cover may
also need to be considered.
Medical aid
Individual membership would be needed as there are not
sufficient employees to establish a group medical aid.
Risks
The risks associated with businesses differ. The insurances for a
retail shop will be totally different from the insurances needed by
a factory employing 200 workers.
Once the exposures and risks have been identified, it becomes
the insurance broker’s duty to prepare their broking notes for
presentation to the insurance company(ies). As mentioned in Unit
3.4, all the facts that are material to the risk must be declared to
the insurance company.
When businesses are preparing their annual expense budget,
they must consider the exposures to loss and the forms of
insurance, and the cost thereof. As explained throughout this Unit
Standard, businesses should not operate without insurances,
certainly if they require debt or equity financing. Few businesses
can operate without some form of external finance.
Study the examples of a typical risk questionnaire in
Addendum 2.
4.2
Business entity specific risks and insurance
needs (AC2)
Jane’s Retail
Shoe Shop
Let’s look at the short-term insurance portfolio for Jane’s Retail
Shoe Shop. The risk financing needs for specific risks are
considered under the following headings using a Multimark III ®
Policy as the example.
Fire
Under fire insurance, we consider some other catastrophe risks.
These would include, lightning, thunderbolt, explosion,
earthquake and earth tremor, storm, wind, water, hail, snow,
impact by aircraft and other aerial devices or articles from them,
impact by vehicles or animals, leakage of fire appliances and
installations, subsidence and landslip, and malicious damage.
Theft
Consider the location and the protection. How much stock could
burglars take given the value of the stock and the time they may
have?
Glass
We established that in terms of the lease for the premises, the
client is responsible for any damage to the premises, so cover will
be needed for the glass on the shop front window. The scope of
cover for the glass is accidental breakage.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Money
Consider the maximum amount of cash that may be on the
premises at any one time. This includes money in the safe and
the cash register and petty cash. Because of the attractiveness of
cash, there are specific requirements as to how cheques are to
be received and made out.
Business
interruption
Damage at the shop by any of the major perils or risks described
in the fire insurance section would most likely result in a loss of
sales. Loss of sales has no direct effect on the businesses
obligation to pay salaries and other expenses of a constant
nature. So business interruption is definitely required.
Public liability
Specific legal liability risks include exposure to customers on the
premises, the occupied premises, and surrounding businesses,
and of course any legal liability in respect of the products they
sell.
Insurances of
the person
Consider death, disability, and medical expenses in respect of the
owner and the staff.
Comprehensive motor
The ownership and use of a vehicle by the business has risks
associated with it. Financial losses could arise as a result of
damage to the vehicle in an accident or by natural perils, such as
storm or hail, or it could be stolen. The business may also suffer a
financial loss as a result of legal liability to a third party should the
driver cause an accident. These risks are covered in terms of
comprehensive motor insurance.
Multimark III ®
The above risks and covers are all catered for in the policy
document. Life and medical covers are negotiated by
intermediaries who have professional knowledge of people risks
and the availability of coverage in these areas.
Broking notes
The broker would prepare their broking notes containing the
following minimum information:
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
Full name of business

Physical address(es) of business

Type of business

Description of business processes

Claims experience of business for as far back as possible

Classes of insurance required

Sums insured, or limits, required for each class of insurance

Details of any special features of the business
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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BROKING NOTES
The Insured
The Business
Period of Insurance
FIRE SECTION
Premises
Property insured
Additional perils
Earthquake
Special perils
Malicious damage
From
to
Stock and materials in trade
both dates inclusive
R
Yes/No
Yes/No
Yes/No
BUSINESS INTERRUPTION SECTION
Premises
Gross profit
R
Indemnity period
(Maximum number of
months) …….
Definitions
Insured standing charges
(Fixed costs)
These must be stated in
full on a scheduled list.
THEFT SECTION
Premises:
R
MONEY SECTION
Premises
1. Money not contained in a locked safe or strongroom
(i) while on the insured premises outside the hours during R1 500
which the commercial operations of the Insured are
conducted
(ii) while in the residence of the Insured, a partner in or of R1 500
or director or employee of the Insured
2. Money contained in a locked safe or strongroom situated in a building at the Insured’s
premises outside the hours during which the commercial operations of the Insured are
conducted in respect of the safe or strongroom described below:
(a)
R
(b)
R
in respect of any safe or strongroom not specified in 2(i) above, the limit shall be according to
the grading of such safe or strongroom as follows:
R2 500
(a) No SABS grading
R5 000
(b) SABS category 1 grading
R12 500
(c) SABS category 2 grading
R25 000
(d) SABS category 2 HD grading
R50 000
(e) SABS category 2 ADM grading
R75 000
(f) SABS category 2 ADM – GRADING D3
R100 000
(g) SABS category 3 grading
R200 000
(h) SABS category 4 grading
provided that the company’s liability shall not exceed the limit shown under 3 for the
premises concerned.
3. In respect of any other loss of or damage to money during the period described below, the
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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limit of indemnity for money relating to the specified insured premises shall be
R
R
R
R
4. In respect of loss of crossed cheques or
R100 000
crossed money orders or crossed postal
orders (This limit of indemnity is payable in
addition to the limits of indemnity shown in 1,
2, and 3.)
provided that irrespective of the number of specific limitations under which claim is lodged,
the maximum liability of the company for one defined event or any series of defined events
arising from one original source shall not exceed for each insured premises the sum of the
limits of indemnity stated for 3 and 4.
GLASS SECTION
Premises:
R
Special reinstatement (National Building
Yes/No
Regulations)
PUBLIC LIABILITY SECTION
Limit of indemnity
R
Extension and clauses
Included
Products liability
Yes/No
Territories (excluding USA and Canada):
Defective workmanship liability
Yes/No
First amount payable: (a) Product liability
R
(b) Defective workmanship
R
GROUP PERSONAL ACCIDENT SECTION
Persons insured:
Occupation:
Circumstances:
1) Death
R
2) Permanent disability such percentage of
the compensation as is specified for the
particular disability
3) Temporary total disability for a period
R
per week
longer than……… weeks but not longer than
…………..weeks.
4) Medical expenses
R
CLAIMS EXPERIENCE
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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4.3
Investigating and selecting a specific insurance
contract to meet identified needs (AC3)
Choice of the insurance contact is decided by comparing the
terms of each contract offered and the insurance companies
themselves. Let us look at this in more detail.
Terms and
premiums
Often clients are more concerned with the premium than the
terms of the contract. The premium required is, however, relative
to the overall terms of the contract offered by the insurance
company. The terms of a contract refer to the scope of cover, first
amounts payable, loss control requirements, and the premium.
Restrict cover
One insurer may wish to restrict cover on less favourable terms
than those offered by the other, and hence, their policy would
have more exceptions.
First amounts
payable and
counter offers
Although you may request quotations with a certain level of first
amounts payable, the insurance company may not be willing to
underwrite the cover at the level of first amounts payable
requested. They then make a counter offer, providing terms with
an alternative first amount payable structure. Compare the first
amount payables required by all companies to see which is more
favourable.
Physical loss
control
requirements
What are the insurer’s minimum requirements regarding fire, theft,
and the safekeeping of money? One insurance company may
require a sprinkler installation, whilst another may be prepared to
underwrite the risk without a sprinkler installation.
Premium
The premium is the amount of money the insurance company
want for the cover to be provided.
Selection of
the insurer
When selecting which insurance company to use, it is advisable
to compare both the administration of the company and its claims
paying ability.
Administration
Is the company well run? How long does it take to obtain a
quotation or to have a policy or an endorsement issued? Is the
documentation correct the first time around? Is the claims
department efficient in its dealings?
These are the questions you should ask to compare the
administration of an insurance company. It may be better to pay a
little more premium to ensure there is efficient administration of
the portfolio.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Claims paying
ability
Obviously, the claims paying ability of the insurance company is
critical. There is little point in arranging insurance with an
insurance company who will not be able to meet claims. Although
insurance companies are regulated, have to submit quarterly
returns to the Registrar of Insurance, and have minimum solvency
margins, this does not guarantee that an insurance company has
sufficient cash reserves to settle claims quickly.
Rating
agencies
Most South African insurance companies have been formally
investigated by rating agencies to provide an independent
assessment of the insurer’s financial security and claims paying
ability.
The rating agencies take many factors, apart from the insurance
company’s statutory solvency margin returns, into account. In
most instances, the insurance intermediary will have the rating
agencies report available, or even have their own internal
investigation report of the ability of the insurance company to
perform as required.
4.4
Exclusions (AC4)
General
exclusions
Staying with the example in Unit 4.2, Jane’s Retail Shoe Shop,
and still using the Multimark III ® Policy as an example, we will
now examine some of the exclusions in the contract. We have
already considered some of the general exclusions in an
insurance contract, so here we will consider some of the specific
exclusions which apply to particular classes of insurance.
Use of heat
and fire
Fire insurance excludes damage to property undergoing any
heating or drying process. This is excluded because such
property is deliberately being subjected to heat and is, therefore,
considered a trade risk. This is not relevant to the shop and,
therefore, does not pose any problem.
It could be a problem for a dry cleaner or laundry service though,
and the client should be made aware of the implication of this
exclusion, when applicable to their business.
Theft
Theft insurance for business entities mostly restricts the cover to
theft accompanied by forcible and violent entry or exit from the
premises.
Glass
This insurance would exclude glass which is damaged before the
insurance is taken out and scratching without the glass being
fractured through its entire thickness. These exceptions should be
acceptable to the client.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Money
Because money is so attractive from a theft point of view, the
client is expected to take extra care with money, and the
insurance company do not cover money stolen from an
unattended vehicle or money stolen from an unlocked safe.
Money not in a safe is usually limited to R1 500.
Business
interruption
The loss of gross profits insurance does not have any exceptions
of its own as it follows the fire insurance. This means all the terms
and exceptions of the fire insurance will apply to this insurance
and it will only respond if there is insured damage to the assets
covered under the fire insurance.
Public liability
Some of the main exceptions in legal liability insurances are
related to contracts entered into by the client which extend their
legal liability beyond that of common law. This is because the
insurance is not designed to insure contractual risks.
Insurances of
the person
Personal accident, or stated benefits, insurances exclude air
travel unless as a passenger, suicide and self injury, death or
injury caused by an existing infirmity, the use of alcohol or drugs,
participation in any riot or civil commotion, and hazardous
activities, such as motor cycling, racing, mountaineering, winter
sports involving snow or ice, professional football, and hanggliding.
Again, most of these exceptions relate to the premium for the risk.
Some of these activities can be insured, but the insurance
company would want to know about them to ensure that the
correct premium is charged.
Motor
As a whole, the motor insurance cover will exclude any damage
or legal liability arising from the vehicle being used other than in
accordance with the description of use, occurring outside the
territorial limits of the policy or whilst being driven by a driver who
is proved to be under the influence of intoxicating liquor or drugs
or whilst the driver is unlicensed.
As far as damage to the vehicle is concerned, the policy will
exclude wear and tear, depreciation, mechanical breakdown, and
damage to tyres or shock absorbers caused by inequalities in the
road.
Third party legal liability excludes any liability which is covered by
any compulsory motor vehicle insurance, such as the Road
Accident Fund. Passenger legal liability is only included for
passengers in a private type vehicle, such as a car or light
delivery vehicle (LDV). The use of the vehicle as a tool of trade,
such as mobile cranes (trucks with cranes attached to them), is
also excluded.
Most exclusions are there for rating purposes or to exclude cover
in respect of risk which it would be against public policy to insure,
such as driving under the influence of alcohol.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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4.5
The terms of the contract (AC5)
The insurance company’s terms for Jane’s Retail Shoe Shop can
be summarised as follows:
Scope of
cover
Per Multimark III ® Policy document; in other words, all of the
terms, conditions, and exceptions of the Multimark III ® Policy will
apply.
First amount
payable
Fire: First amounts payable are not common in respect of fire
insurance. However, it would not be uncommon to apply a first
amount payable to damages emanating from lightning.
Physical loss
control
requirements
Premium
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
Theft: The insurance company could apply a first amount
payable for “smash-and-grab” claims.

Glass: The insurer could apply a first amount payable for
“smash-and-grab” claims.

Money: First amount payables are not common in respect of
money insurance.

Loss of gross profit: First amount payables are not common
on loss of gross profit insurances, other than in respect of loss
of sales arising from the failure of electricity, water, or gas. A
time first amount payable calculated for the first 24 hours of
failure would apply.

Public liability: First amount payables are not common in
respect of legal liability insurance.

Motor: Motor first amount payables can be based on a
monetary amount or be expressed as a percentage of the
claim.

Fire: Fire protections may include hand held appliances, hose
reels, or sprinkler systems. Water protection may include
palletising of stock to keep it off the ground.

Theft: Physical protections such as burglar bars and particular
types of locks may be stipulated. An alarm with an armed
response service may be required depending on the location.

Money: A particular grading of safe will be required depending
on the limit of cover required.

Motor: Alarms and satellite tracking will be mandatory for high
valued vehicles.

Fire, theft, glass, money, and loss of gross profits: The
premium will be calculated by applying a rate to the value
insured.

Public liability: Liability insurance is often a flat premium per
premises, whilst products liability will be calculated by
applying a rate to the turnover of the business.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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4.6

Insurances of the person: The premium could be based on the
death benefit value insured or a rate applied to the annual
earnings of the insured persons.

Motor: Individually stated vehicles will have the premium
based on the use, the value, the type of vehicle, where it is
normally kept, the vehicle security protections, and on the
claim free years applicable.
Specialised insurance (AC6)
Some businesses require more specialised insurance than
others. Some examples may be as follows:
Employee
dishonesty
Employee dishonesty, or fidelity cover as it is otherwise known, is
generally available. This cover is, however, limited to direct
financial loss suffered only as a result of the dishonesty of any of
the businesses employees.
Electronic
funds transfer
(EFT)
More specialised policies are available which include financial
loss arising from fraudulent EFT perpetrated by either an
employee or an outsider to the business.
Professional
indemnity
Public liability insurances will only indemnify the client for their
legal liability arising from injury or damage and exclude legal
liability arising from defective design or specification.
Professionals face the risk of being legally liable for pure financial
losses for liabilities from the design of a product. These
exposures can be insured by a professional indemnity policy.
Typically, professionals such as attorneys, accountants, auditors,
engineers, doctors, and financial service organisations need this
cover.
Construction
insurance
Fire insurances do not insure property while it is under
construction. Building and other contracts such as the supply and
installation of machinery can be insured under contractor’s policy.
This policy covers the contract works (the subject matter of the
contract) and all the material intended to become part of the
contract works while it is in transit or while it is on the contract
site. The policies also extend to insure the principal and contract’s
legal liability. Plant all risks and hired-in-plant policies are
available for the contractor’s equipment or plant which the
contractor may hire in to do the contract.
Financial
guarantees or
sureties
This is applicable to contractors who have to provide a
performance guarantee as part of the principal’s requirements
when the contract is awarded. For the purposes of insurance
guarantees, the client will always have to provide a counter
guarantee and more often than not will have to provide collateral
security. The amount of collateral security required may vary,
depending on the strength of the contractor’s balance sheets.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Marine
insurance
Typically, those businesses that import or export will require
marine insurance. Marine insurance is underwritten by a
specialised department within the insurance company.
Credit
insurances
(domestic or
export credit)
Any client who supplies goods or services on credit has a credit
risk. It is a financial aid to large-scale finance deals and is
important in the medium- to long-term credit facilities provided by
the supplier.
Credit Guarantee Corporation of Africa Limited (CGIC) was
established in South Africa by the major insurers and banks to
underwrite credit risks. Export credit covers non-payment due to
insolvency, political risks, or consequences outside of the control
of the seller and the purchaser. Domestic credit covers only the
insolvency or protracted default of the buyer.
Engineering
insurance
Factories and other businesses which are heavily dependent on
machinery and equipment may need to insure against machinery
breakdown. Because of the specialised nature of such machinery,
it is handled by a specialist insurance underwriter who has
technical knowledge of machinery.
Electronic
equipment
Specialist policies are available to cover electronic equipment
such as computers, telephone exchanges, and other electronic
equipment. These policies include electrical and electronic
breakdown cover.
Exhibition all
risks
Clients sometimes participate in industry or trade fairs. Most of
their policies may be restricted to providing cover for their
property at their own premises, hence, the need to arrange
separate exhibition insurances.
The policy would cover all of the property, the client’s own or that
which they hire for the exhibition, whilst in transit to and from and
whilst at the exhibition.
The client should also tell their legal liability insurers about the
event to make sure they are covered for legal liability arising as a
result of participation in the exhibition. This is because being an
exhibitor may not have been mentioned in the client’s description
of business.
Perhaps, depending on where the event is being held and the
anticipated number of visitors, the client should consider extra
legal liability cover, specifically for the exhibition.
Specialised insurances are available for nearly any activity, event,
or business.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
1. How vital is it to investigate the needs for insurance in a
business entity?
Self-test 4
2. Name a few specialised forms of insurance coverage that a
business could consider.
3. Design a table that you can use when comparing different
insurance contracts
4. List the typical exclusions found in a vehicle insurance
contract.
5. List 10 specialised insurance items.
Competency
Competency
check and
progress
indication
Version 1 2017/06/28
Check
SO3
I can identify the need for an insurance in the
financial planning of a business.

AC1
I can analyze a business entity risk and
insurance need with a view to negotiating
insurance to meet the identified need.

AC2
I can explain the need to investigate an
insurance contract with two different insurance
institutions.

AC3
I can identify exclusions in a contract.

AC4
I can indicate why exclusions are necessary
and whether they re acceptable to a business
entity.

AC4
I can explain the terms of a contract.

AC5
I can identify specialised insurance required to
meet the needs of a particular business
enterprise and reasons are given to explain
why the identified risks are important to the
particular kind of business.

AC6
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Answers to Self-tests
1. Broadly speaking what are the categories of financial
services?
Self-test 1
A. Micro financiers, banking, capital markets, collective
investment schemes, insurance, retirement funding
and medical aid.
2. What changes in the financial services sector have you
noticed recently?
B. Mergers and acquisitions, legislation changes, bee
involvements and technology advancements.
3. List at least 4 financial service organisations that are
quoted on the JSE.
C. Sanlam
D. Old Mutual
E. Liberty
F. AAAAA
6. Study Example 2 (Addendum 1) of Sanlam’s holdings and
identify the main business of at least 10 holdings.
A.
Example
Company Name
Main Business
ABSA
Financial
SAFAIR
Leasing and chartering of
passenger and cargo aircraft to
domestic and international
operators
TRADEK
Tlotlisa Holdings Ltd (former Tradek
HOLDINGS LTD
Holdings Ltd) is an investment
holding company.
BELDIV
Investments
Genbel Securities is a South African
GENBEL
securities trading and underwriting
SECURITIES LTD
group.
GENSEC
Gensec Property Services
PROPERTY
specialises in the management and
SERVICES (PTY)
administration of commercial
LTD
properties.
SANLAM
Investments
INVESTMENTS
(PTY) LTD
SANLAM LIFE
Life Insurance
INSURANCE LTD
Sanlam Netherlands Holdings BV is
SANLAM
the European holding company of
NETHERLANDS
the
HOLDINGS BV
Sanlam Group.
Rycklof Investments Investments
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
7. Why do some companies prefer to list offshore?
A.
Companies list locally and offshore to increase
ability to raise capital. This is known as a dual
listing. A dual listing increases access to
markets to raise capital for the business.
Moreover, companies may list in more than one
territory when they have significant amounts of
business in those territories.
1. What is the concept of insurance?
Self-test 2
A. The many contributors into a common fund to pay for
the few who suffer a loss.
2. Explain how insurance plays a role in a business
enterprise.
a.
Financial planning for the future, wealth creation,
protection of assets and people.
3. Explain ‘insurable interest’.
a. You are not permitted to insure anything that by its
loss or damage you do not stand to lose financially.
Therefore, you can only insure something where by
its loss or damage, or by a legal liability action
against you, you will suffer financially.
4. When must insurable interest apply in respect of a marine
policy?
a. At the time of claim.
5. Material damage, legal liability and motor insurances are
common business entity insurance covers arranged. Are
there any other forms of business insurance that can be
arranged?
a. Bodily injury, death, partnership and business
interruption.
6. What business events cannot be insured?
a. War, nuclear activity, use of asbestos, computers
inability to use a date and riot. Riot can be insured
but only through a specialist insurance company
called SASRIA.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
7. Explain claim reserving in your own words.
a. Claim reserving is rather like you saving to go on
holiday. You know you will be going on holiday, but
you may not have decided where to go or for how
long. You budget and hope that when you need the
money, you have enough.
The insurance company knows that they will have
to pay a claim, but they do not know when or how
much. So the Acts make it compulsory for the
insurance company to budget a minimum amount
(basically 15%) and, when the claim actually
happens, to make sure that their estimate is
adequate and to transfer the budgeted reserve into
a bank call account, waiting for payment to the
insured.
8. How important is it to audit the books of a business to
secure claims statistics?
a. Accurate claims statistics are vital to managing
risk. By studying the pattern of previous losses, it
will point to possible remedial action being required
as a risk management or loss control measure
9. Why do large corporations consider arranging some form
of captive insurance?
a. At times, the larger corporate companies began to
feel the conventional insurance companies were
not meeting their needs. Premiums were volatile
from one year to the next, cover became more
restrictive, and as the value of the large mining and
industrial companies’ assets and profits rose, the
ability of the insurance companies to take such
large risks became impeded. In insurance
terminology, this is referred to as a lack of capacity.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
1. Is an insurance policy a legally enforceable contract?
a. Insurance policies are legally enforceable contracts.
Self-test 3
2. Name the three main types of insurances that will make up
a typical portfolio of a business.
a. Short-term insurance
b. Long-term insurance
c. Medical aid
3. What is the purpose of an endorsement?
a. Sometimes the client may wish to alter an
insurance contract during the period of insurance.
They may have acquired additional buildings or
another plant and need to increase the fire sum
insured. Or the amount of cash collected has
increased, and they have to increase the limit on
their money cover. Or they have acquired a new
vehicle, and this must be added to the policy.
When this happens, the insurance company may
note the change by an endorsement.
4. List the main responsibilities of the insured.
a. Duty of disclosure
b. Duty of reasonable care
c. Premium payment
d. Notification of claims
e. Assisting with recoveries
1. How vital is it to investigate the needs for insurance in a
business entity?
Self-test 4
a. Without insurances the business entity is likely to fail
due to fail due to the lack of finances should a loss
occur.
2. Name a few specialised forms of insurance coverage that
a business could consider.
a. Fire, Theft, Glass, Money, Business interruption,
Public Liability, Personal, Motor insurance
3. Design a table that you can use when comparing different
insurance contracts.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Specifications
Terms
Premiums
Restricted cover
First amounts
payable
Physical loss
control
requirements
Insurers
administrative
capability
Insurers claim
paying ability
Rating
Old Mutual
Sanlam
Liberty
4. List the typical exclusions found in a vehicle insurance
contract:
a. As a whole, the motor insurance cover will
exclude any damage or legal liability arising
from the vehicle being used other than in
accordance with the description of use,
occurring outside the territorial limits of the
policy or whilst being driven by a driver who is
proved to be under the influence of intoxicating
liquor or drugs or whilst the driver is
unlicensed.
b. As far as damage to the vehicle is concerned,
the policy will exclude wear and tear,
depreciation, mechanical breakdown, and
damage to tyres or shock absorbers caused by
inequalities in the road.
c. Third party legal liability excludes any liability
which is covered by any compulsory motor
vehicle insurance, such as the Road Accident
Fund.
d. Passenger legal liability is only included for
passengers in a private type of vehicle, such as
a car or light delivery vehicle (LDV).
e. The use of the vehicle as a tool of trade, such
as mobile cranes (trucks with cranes attached
to them), is also excluded.
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
5. List 10 specialised insurance items.
a. Employee dishonesty
b. Electronic funds transfer (EFT)
c. Professional indemnity
d. Construction insurance
e. Financial guarantees or sureties
f.
Marine insurance
g. Credit insurances (domestic or export credit)
h. Engineering insurance
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i.
Electronic equipment
j.
Exhibition all risks
67
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Addendum 1
Example 1
Long-term sector:
Old Mutual
Old Mutual is dual listed on both the JSE and the London Securities Exchange.
OLD MUTUAL PLC
Long-term Insurance
%
Associates
OM KOTAK MAHINDRA LIFE ASSURANCE (INDIA)
26%
Direct subsidiaries
OM GROUP (UK) LTD
100%
Indirect subsidiaries
ACADIAN ASSET MANAGEMENT INC. (USA)
AMERICOM LIFE & ANNUITY INSURANCE CO. INC. (USA)
BARROW, HANLEY, MEWHINNEY & STRAUSS INC. (USA)
BOE HOLDINGS LTD
BOE INTERNATIONAL HOLDINGS (PTY) LTD
BOE LIFE ASSURANCE COMPANY LTD
BOE LIFE LIMITED
BOE LTD
BOE UNIT TRUST MANAGEMENT COMPANY LTD
BRIGHT CAPITAL LTD
CLAY FINLAY INC. (USA)
DWIGHT ASSET MANAGEMENT CO. INC. (USA)
FAIRBAIRN CAPITAL (PTY) LTD
FEDELITY & GUARANTY LIFE INSURANCE COMPANY OF NY
FIDELITY & GUARANTY LIFE INSURANCE CO. INC. (USA)
FIRST PACIFIC ADVISORS INC. (USA)
GERRARD PRIVATE BANK (JERSEY)
HEITMAN FINANCIAL LLC
MUTUAL & FEDERAL INSURANCE COMPANY LTD
NEDBANK LTD
NEDCOR ASIA LTD (SOUTH AFRICA)
NEDCOR INVESTMENT BANK HOLDINGS LTD
NEDCOR LTD
NEDINSURANCE COMPANY LTD
OLD MUTUAL (NETHERLANDS) B.V. (NETH)
OLD MUTUAL (SOUTH AFRICA) LTD
OLD MUTUAL (US) HOLDINGS INC. (USA)
OLD MUTUAL ASSET MANAGERS (BERMUDA) LTD (BER)
OLD MUTUAL ASSET MANAGERS (SOUTH AFRICA) (PTY) LTD
OLD MUTUAL ASSET MANAGERS (UK) LTD (UK)
OLD MUTUAL ASSET MANAGERS (KENYA) LTD
OLD MUTUAL FUND MANAGERS (GUERNSEY) LTD
OLD MUTUAL GROUP LTD (BERMUDA)
OLD MUTUAL HEALTH INSURANCE LTD
OLD MUTUAL HEALTHCARE (PTY) LTD
OLD MUTUAL INTERNATIONAL (GUERNSEY) LTD (GUERNSEY)
OLD MUTUAL INVESTMENT ADMINISTRATORS (PTY) LTD
OLD MUTUAL LIFE ASSURANCE CO. (BERMUDA) LTD
100%
100%
100%
53%
53%
53%
76%
52%
53%
100%
100%
100%
100%
100%
100%
100%
65%
100%
87.6%
52.7%
52%
52%
52%
52%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
OLD MUTUAL LIFE ASSURANCE CO. (MALAWI) LTD (MALAWI)
OLD MUTUAL LIFE ASSURANCE CO. (NAMIBIA) LTD (NAMIB)
OLD MUTUAL LIFE ASSURANCE CO. (SOUTH AFRICA) LTD
OLD MUTUAL LIFE ASSURANCE CO. LTD (KENYA)
OLD MUTUAL LIFE ASSURANCE CO. ZIMBABWE LTD (ZIM)
OLD MUTUAL PROPERTIES (PTY) LTD
OLD MUTUAL PROPERTY INVESTMENT CORP (PVT) LTD
OLD MUTUAL REASSURANCE (IRELAND) LTD
OLD MUTUAL SPECIALISED FINANCE (PTY) LTD
OLD MUTUAL UNIT TRUST MANAGERS LTD
OLD MUTUAL UNIT TRUST MGMT CO. NAMIBIA LTD (NAMIBIA)
OLD MUTUAL US LIFE HOLDINGS INC. (USA)
OM PORTFOLIO HOLDINGS (SA) (PTY) LTD
OMNIA LIFE (BERMUDA) LTD
OSV FINANCIAL MANAGEMENT GMBH
PACIFIC FINANCIAL RESEARCH INC.
PEOPLE'S BANK (PTY) LTD
PILGRIM BAXTER & ASSOCIATES INC. (USA)
PROVIDENT INVESTMENT COUNSEL INC. (USA)
RODINA INVESTMENTS LTD
SELESTIA LIFE & PENSIONS LTD
THOMPSON, HORSTMANN & BRYANT, INC.
THOMPSON, SIEGEL & WALMSLEY INC.
Example 2
Long-term sector: Sanlam
Sanlam is also very diverse in the long-term field and is also dual listed, both on
the JSE and the London Securities Exchange.
SANLAM LTD
Long-term Insurance
Associates
ABSA GROUP LTD
SAFAIR LEASE FINANCE (PTY) LTD (JOINT VENTURE)
TRADEK HOLDINGS LTD
100%
100%
100%
63%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
52%
100%
100%
100%
100%
100%
100%
%
21%
50%
37%
indirect
Direct subsidiaries
BELDIV INVESTMENTS (PTY) LTD
GENBEL SECURITIES LTD
GENSEC PROPERTY SERVICES (PTY) LTD
SANLAM INVESTMENTS (PTY) LTD
SANLAM LIFE INSURANCE LTD
SANLAM NETHERLANDS HOLDINGS BV
SANLAM SPEC (PTY) LTD
TASC ADMINISTRATION (PTY) LTD
100%
100%
100%
100%
100%
100%
100%
100%
Indirect subsidiaries
ELECTRA INVESTMENTS (SA) LTD
GENSEC UNIVERSAL FUND PLC
HICHENS, HARRISON & CO. PLC (UK)
PSIGMA GROUP (UK)
RYCKLOF INVESTMENTS (PTY) LTD
SANLAM FINANCIAL SERVICES (PTY) LTD
SANLAM INVESTMENT MANAGEMENT (PTY) LTD
SANLAM NAMIBIA LTD
SANTAM LTD
U.R.D. INVESTMENTS (PTY) LTD
100%
93%
100%
60%
100%
100%
100%
100%
48%
100%
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
Investments
SANTAM LTD
Example 3
Banking sector: Firstrand Limited
FIRSTRAND LTD
Banking
Associates
AFRICAN LIFE
MARSH HOLDINGS SA (PTY) LTD
MC CARTHY LTD
MOBILE ACCEPTANCES (PTY) LTD
OUTWARD INVESTMENTS (PTY) LTD
RELYANT RETAIL LTD
TOYOTA FINANCIAL SERVICES (PTY) LTD
ZEDA CAR LEASING (PTY) LTD
5%
%
33%
40%
48%
26%
46%
26%
33%
50%
Direct subsidiaries
FIRSTRAND HOLDINGS LTD
FIRSTRAND INVESTMENT HOLDINGS LTD
MOMENTUM GROUP LTD
100%
100%
100%
Indirect subsidiaries
DISCOVERY HOLDINGS LTD
FIRST ASSET MANAGEMENT
FIRST LAND DEVELOPMENTS LTD
FIRST NATIONAL ASSET MANAGEMENT & TRUST CO. P/L
FIRST NATIONAL BANK (PTY) LTD
FIRST NATIONAL BANK HOLDINGS (BOTSWANA) LTD
FIRST NATIONAL BANK OF NAMIBIA LTD (NAMIBIA)
FIRST NATIONAL BANK OF SWAZILAND LTD (SWAZI)
FIRSTCORP MERCHANT BANK HOLDINGS LTD
FIRSTLINK INSURANCE BROKERS HOLDINGS (PTY) LTD
FIRSTRAND BANK LTD
FIRSTRAND INTERNATIONAL (MAURITIUS) LTD
FNB EQUIPMENT FINANCE (PTY) LTD
MOMENTUM INTERNATIONAL MULTIMANAGERS
RAND MERCHANT BANK LTD
RMB PRIVATE EQUITY (PTY) LTD
62%
100%
100%
100%
80%
100%
77%
100%
100%
100%
100%
100%
100%
73%
100%
88%
Example 4
General industrial sector: Imperial
The extent of involvement in financial services of Imperial is interesting considering this
company is listed on the general industrial sector
IMPERIAL HOLDINGS LTD
%
Diversified Industrial
Associates
ACL AVIATION (PTY) LTD
50%
AIR CONTRACTORS LTD (IRELAND)
49%
FLEET SUPPORT SERVICES (PTY) LTD
50%
49.9
IMPERIAL BANK LTD
%
KHAYA CAR HIRE (PTY) LTD
38%
SAFAIR LEASE FINANCE (PTY) LTD (JOINT VENTURE)
50%
TRUCK & ALLIED SERVICES (PVT) LTD (ZIMBABWE)
50%
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
UKHAMBA HOLDINGS (PTY) LTD
46.9
%
Direct subsidiaries
AFRICAN CAR HIRE (SWAZILAND) (PTY) LTD (SWAZILAND)
AIR CONTRACTORS (UK ) LIMITED
ALMEYROSE INVESTMENTS (PTY) LTD
ANVIL INTERNATIONAL FINANCE LTD
ANVIL INTERNATIONAL LTD
ARROW BULK CARRIERS (PTY) LTD
ASSOCIATED MOTOR HOLDINGS (PTY) LTD
AUTO PEDIGREE (PTY) LTD
BRIAN PORTER HOLDINGS LTD
CAR HIRE BROKERS (PTY) LTD
CARGO AFRICA (PTY) LTD
CLAY SPRINGS INVESTMENTS (PTY) LTD
COLD CHAIN (PTY) LTD, THE
COMMERCIAL CENTRE (PTY) LTD
DEKSON TRANSPORT (PTY) LTD
ERF FOUR NINE NINE SPARTAN (PTY) LTD
ETOSHA TRANSPORT (PTY) LTD
FAST N FRESH TRANSPORT (PTY) LTD
FOURWAYS HOLDING (PTY) LTD
FREIGHTMAX (PTY) LTD
GARDEN ROUTE TOURS (PTY) LTD
GMS TRANSPORT (PTY) LTD
GOLD REEF GUIDES (PTY) LTD
GOLDFIELDS TRUCKING (PTY) LTD
GROSVENOR TOURS (PTY) LTD
GUEST ASSISTANCE (PTY) LTD
HANIEL REEDEREI HOLDING GMBH
HIGHWAY CARRIERS (NATAL) (PTY) LTD
ICAP FINANCE (PTY) LTD
IMPACT FORK TRUCKS LTD
Version 1 2017/06/28
100%
EFFECTIVE
100%
100%
100%
EFFECTIVE
100%
EFFECTIVE
60%
EFFECTIVE
90%
EFFECTIVE
100%
100%
75%
EFFECTIVE
60%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
50%
EFFECTIVE
100%
EFFECTIVE
100%
100%
100%
EFFECTIVE
50%
50%
EFFECTIVE
100%
DORMANT
100%
100%
DORMANT
60%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
51%
EFFECTIVE
100%
EFFECTIVE
70%
EFFECTIVE
100%
EFFECTIVE
71
Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
IMPERIAL CAR IMPORTS (PTY) LTD
IMPERIAL CAR RENTAL (BOTSWANA) (PTY) LTD (BOTSWANA)
IMPERIAL CAR RENTAL (NAMIBIA) (PTY) LTD (NAMIBIA)
IMPERIAL CAR RENTAL (PTY) LTD
IMPERIAL FINANCIAL HOLDINGS LTD
IMPERIAL FINANCIAL SERVICES (PTY) LTD
IMPERIAL FLEET SERVICES (PTY) LTD
IMPERIAL GROUP (PTY) LTD
IMPERIAL LOGISTICS INTERNATIONAL GMBH & CO. KG
IMPERIAL MANAGEMENT SERVICES (PTY) LTD
IMPERIAL MOTORS (PTY) LTD
IMPERIAL PANEL SHOPS (PTY) LTD
IMPERIAL TRANSPORT HOLDINGS LTD
IMPERIAL TRUCK HIRE (PTY) LTD
IMPERIAL TRUCK SYSTEMS (PTY) LTD
IMPERIHOLD (PTY) LTD
IMPERILOG LTD
INTERCITY BENONI (PTY) LTD
INTERCITY MOTORS (PTY) LTD
INTERNATIONAL TRANSPORT CORP (PTY) LTD
JAVELIN TRUCKING (PTY) LTD
JWJ MECHANICALS (PTY) LTD
KAGISO AUCKLAND PARK (PTY) LTD
KAGISO PIETERSBURG (PTY) LTD
KELRN TRANSPORT (PTY) LTD
LECTROLITE PRODUCTS (PTY) LTD
LOMBARD'S TRANSPORT (TVL) (PTY) LTD
LONDOLA TRANSPORT (PVT) LTD (ZAMBIA)
LONG DISTANCE TRANSPORT (PTY) LTD
Version 1 2017/06/28
90%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
DORMANT
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
60%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
53%
EFFECTIVE
100%
EFFECTIVE
100%
DORMANT
100%
EFFECTIVE
100%
DORMANT
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
LONGRAIL LTD
LUFTMEISTER AIR (PTY) LTD
MB LOGISTICS (PTY) LTD
MEGAFREIGHT SERVICES (PTY) LTD
MERCURIUS MOTORS (PTY) LTD
MILLFREIGHT TRANSPORT & CONSULTING (PTY) LTD
MRB ONDERNEMINGS (PTY) LTD
MULTI WESCO (PTY) LTD
MURNAU HOLDINGS LTD
NATIONAL AIRWAYS & FINANCE CORPORATION (PTY) LTD
NEWCASTLE PROPERTIES SHARE BLOCK (PTY) LTD
NOMINATED CARRIERS (PTY) LTD
NORMANS TRANSPORT LINES (PTY) LTD
NORTH EAST CARRIERS (PTY) LTD
PLUS RENT A CAR (PTY) LTD (MOZAMBIQUE)
PROPATEEZ 53 (PTY) LTD
QUADRO STEEL PROPERTIES (PTY) LTD
QUALITY PANELBEATERS (PTY) LTD
QUATTRO CARRIERS (PTY) LTD
REGENT INSURANCE COMPANY LTD
REGENT LIFE ASSURANCE COMPANY LTD
ROYAL FREIGHT SERVICES (PTY) LTD
SAFAIR (PTY) LTD
SAFAIR LEASE FINANCE (PTY) LTD (JOINT VENTURE)
SAFICON BOUMAT GROUP SERVICES (PTY) LTD
SAFICON MOTOR HOLDINGS LTD
SAKER'S INVESTMENTS (PTY) LTD
SANITECH SERVICES (PTY) LTD
SCHUS IMPORTS (PTY) LTD
SHORTHAULS (PTY) LTD
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100%
DORMANT
100%
EFFECTIVE
100%
EFFECTIVE
58.98%
EFFECTIVE
100%
EFFECTIVE
70%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
62%
EFFECTIVE
50%
DORMANT
100%
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
80%
EFFECTIVE
90%
DORMANT
100%
EFFECTIVE
100%
EFFECTIVE
100%
100%
EFFECTIVE
50%
EFFECTIVE
100%
EFFECTIVE
100%
DORMANT
100%
EFFECTIVE
100%
EFFECTIVE
81%
EFFECTIVE
100%
DORMANT
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
in a business environment
SPRINGBOK ATLAS (PTY) LTD
SPRINGBOK TOURING OF NAMIBIA (PTY) LTD (NAMIBIA)
SSANGYONG MOTOR DISTRIBUTORS (PTY) LTD
SUNRIPE LTD
SWANS RENT A CAR (PTY) LTD
TANKER SERVICES (PTY) LTD
TANNERY PANELBEATERS (PTY) LTD
TEMPEST CAR HIRE (PTY) LTD
TIDE TRANSPORT (BOTSWANA) (PTY) LTD (BOTSWANA)
TOURISM HOLDINGS RENTALS S A (PTY) LTD
TOURISM INVESTMENT CORPORATION LTD
TRAN-SEND FREIGHT SPECIALISTS (PTY) LTD
TRUCKAFRICA (BOTSWANA) (PTY) LTD
TYCO INTERNATIONAL (PTY) LTD
VAN ZYL'S SPRING WORKS (PTY) LTD
WESTERN CARRIERS (PTY) LTD
WIP MOTORS (PTY) LTD
Indirect subsidiaries
KAWASAKI MOTORCYCLES SA
100%
EFFECTIVE
100%
EFFECTIVE
UNKNOWN%
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
80%
EFFECTIVE
100%
EFFECTIVE
90%
DORMANT
100%
EFFECTIVE
65%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
100%
EFFECTIVE
70%
EFFECTIVE
100%
EFFECTIVE
TRUCKAFRICA INTERNATIONAL (PTY) LTD
75%
70%
EFFECTIVE
100%
Investments
ITI TECHNOLOGY HOLDINGS LTD
9%
KOBUS MINNAAR TRANSPORT (PTY) LTD
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Addendum 2
1. DESCRIPTION OF BUSINESS
Main Activities:
Main Suppliers:
Main Customers:
Main Services:
2. WHAT COULD REALLY CLOSE DOWN THE BUSINESS?
3. WHAT ASSETS/PEOPLE/SERVICES IS THE BUSINESS DEPENDANT ON?
Dependency Level
Dependency
Dependency
Group
on
Zero Low Med. High
Retain
Insure
Land
Buildings
Communications
Computer
Files
Machinery
Stocks
Money
Income
People
Service lines
Transport
Other
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4. WHAT PERILS IS THE BUSINESS MAINLY EXPOSED TO?
Exposure Level
Exposure
Exposure to /
Group
spread of
Fire
Fire
Zero Low Med. High
Retain
Insure
Smoke
Wind
Rain
Hail
Snow
Lightening
Earth
Earthquake
Mining tremor
Subsidence
Landslip
Water
Flood
Tidal wave
Animals
Animals
Vermin
People
Pilferage
Theft
Robbery
Fraud/Dishonesty
Computer fraud
Malicious damage
Strikes
Extortion
Kidnapping
Machinery
Collapse
Impact
Machinery breakdown
Explosion
Stocks
Stock deterioration
Leakages
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Spontaneous combustion
Services/Fuel
Other
5. WHAT LIABILITIES IS THE BUSINESS EXPOSED TO?
Exposure Level
Exposure
Exposed
Group
from
Zero Low Med. High
Retain
Insure
Land
Buildings/Walls
Car park
Machinery/Vessels
Stock in trade
Products/Services
Documents/
Agreements/Notices
Money
Animals
People
Transport
Media/Internet
Statutes
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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Addendum 3
All qualifications and unit standards registered on the National
Qualifications Framework are public property. Thus the only
payment that can be made for them is for service and reproduction.
It is illegal to sell this material for profit. If the material is reproduced
or quoted, the South African Qualifications Authority (SAQA)
should be acknowledged as the source.
SOUTH AFRICAN QUALIFICATIONS AUTHORITY
REGISTERED UNIT STANDARD:
Analyse the Financial Services industry and the role of insurance in a business
environment
SAQA US ID
UNIT STANDARD TITLE
12168
Analyse the Financial Services industry and the role of insurance
in a business environment
SGB NAME
NSB
SGB Financial
Services
NSB 03-Business,
Commerce and
Management Studies
PROVIDER NAME
FIELD
SUBFIELD
Business, Commerce and Management Studies Finance, Economics and
Accounting
ABET BAND
UNIT STANDARD TYPE
NQF LEVEL
CREDITS
Undefined
Regular
Level 4
9
REGISTRATION
STATUS
REGISTRATION START
DATE
REGISTRATION
END DATE
SAQA
DECISION
NUMBER
Registered
2001-12-05
2004-12-05
SAQA
0639/01
PURPOSE OF THE UNIT STANDARD
This unit standard analyses financial services for commonality and difference and
introduces the need for insurance in a business entity. The focus is knowledge, skills,
values and attitudes in relation to the business context.
The qualifying learner is capable of:
enterprise.
tract that meets the needs of a specific business
enterprise.
LEARNING ASSUMED TO BE IN PLACE
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Unit Standard SAQA 12168 – Analyse the Financial Services industry and the role of insurance
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There is open access to this unit standard. Learners should be competent in
Communication, Financial Literacy and Mathematical Literacy at NQF Level 3.
UNIT STANDARD RANGE
The typical scope of this unit standard is:
financiers, long and short term insurance, intermediary insurance, asset management,
trust management, collective investments and South African Revenue Services.
UNIT STANDARD OUTCOME HEADER
N/A
Specific Outcomes and Assessment Criteria:
SPECIFIC OUTCOME 1
Analyse the different services that are classified as financial.
ASSESSMENT CRITERIA
ASSESSMENT CRITERION 1
1. The various categories of financial service are analysed and an indication given of
the similarities and differences between the various services.
ASSESSMENT CRITERION 2
2. Business activities common to most financial service providers are analysed and an
indication is given of where there is commonality and difference.
ASSESSMENT CRITERION 3
3. Current changes in the structure of the financial services sector are identified from
the media and an indication is given of how these changes will impact on the sector
and the consumer.
ASSESSMENT CRITERION 4
4. Four of the main holding companies in the field are analysed in terms of links to
other financial organisations.
ASSESSMENT CRITERION 5
5. The financial organisations listed on the JSE and other markets are identified and
reasons are given to explain why some financial organisations choose to list both
locally and offshore.
SPECIFIC OUTCOME 2
Demonstrate knowledge and understanding of the kinds of insurance that are
important in a business
OUTCOME NOTES
Demonstrate knowledge and understanding of the kinds of insurance that are
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important in a business venture.
ASSESSMENT CRITERIA
ASSESSMENT CRITERION 1
1. The concepts of insurance and pooling of risk are explained in relation to business
enterprise risk management.
ASSESSMENT CRITERION 2
2. The role of insurance is described in relation to business enterprise financial
planning.
ASSESSMENT CRITERION 3
3. Terminology used in the insurance industry such as offer, acceptance and subject
matter is applied to insurance in the business sector.
ASSESSMENT CRITERION 4
4. The concept of insurable interest is explained as applied to a specific business
entity.
ASSESSMENT CRITERION 5
5. Five events and risks that can be insured are identified and the advantages of
insurance are explained in relation to a specific business entity.
ASSESSMENT CRITERION 6
6. Two business events and risks that cannot be insured are identified and reasons
are given why some business risks are uninsurable.
ASSESSMENT CRITERION 7
7. The concept of claims reserves is explained with reference to the effect these have
on the payment of a claim.
ASSESSMENT CRITERION 8
8. The importance of auditing books of business to provide claims statistics is
explained and an indication is given of the action that can be taken if claims statistics
are unsatisfactory.
ASSESSMENT CRITERION 9
9. The concept of a captive market/portfolio is explained with reference to the role of
both the intermediary and the insurance company.
SPECIFIC OUTCOME 3
Explain a contract of insurance in a business entity.
ASSESSMENT CRITERIA
ASSESSMENT CRITERION 1
1. The purpose of a contract is explained with reference to an actual policy for a
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business entity.
ASSESSMENT CRITERION 2
2. The purpose of a portfolio is explained and the characteristics of a portfolio are
indicated for an authentic business enterprise.
ASSESSMENT CRITERION 3
3. The term endorsement is explained and examples of endorsements are identified in
a business contract.
ASSESSMENT CRITERION 4
4. The main rights and responsibilities of the insured are understood and explained in
terms of a complex business insurance contract and the need for reinsurance.
SPECIFIC OUTCOME 4
Negotiate an insurance contract to meet the needs of a selected business enterprise.
ASSESSMENT CRITERIA
ASSESSMENT CRITERION 1
1. The need for insurance is identified in the financial planning of a business entity.
ASSESSMENT CRITERION 2
2. Business entity specific risks and insurance needs are analysed with a view to
negotiating insurance to meet the identified needs.
ASSESSMENT CRITERION 3
3. An insurance contract is investigated with two different insurance institutions to
meet the identified need and a decision is made and supported to explain the
particular insurance choice.
ASSESSMENT CRITERION 4
4. Exclusions in the contract are identified and an indication is given as to why the
exclusions are necessary and whether they are acceptable to the business entity.
ASSESSMENT CRITERION 5
5. The terms of the contract are explained for the selected business entity.
ASSESSMENT CRITERION 6
7. Specialised insurance required to meet the needs of a particular business
enterprise is identified and reasons are given to explain why the identified risks are
important to the particular kind of business.
UNIT STANDARD ACCREDITATION AND MODERATION OPTIONS
This Unit Standard will be internally assessed by the provider and moderated by a
moderator registered by INSQA or a relevant accredited ETQA. The mechanisms and
requirements for moderation are contained in the document obtainable from INSQA,
INSQA framework for assessment and moderation.
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UNIT STANDARD ESSENTIAL EMBEDDED KNOWLEDGE
N/A
UNIT STANDARD DEVELOPMENTAL OUTCOME
N/A
UNIT STANDARD LINKAGES
N/A
Critical Cross-field Outcomes (CCFO):
UNIT STANDARD CCFO IDENTIFYING
The learner can identify and solve problems and make a decision about the choice of
an insurance contract for a business entity by understanding the consequences of
insuring or not insuring risk and the selection of a portfolio to meet specific needs.
UNIT STANDARD CCFO ORGANIZING
The learner can organise and manage himself by undertaking financial planning for
the insurance needs of a business enterprise.
UNIT STANDARD CCFO COLLECTING
The learner can organise and manage himself by undertaking financial planning for
the insurance needs a business enterprise.
UNIT STANDARD CCFO COMMUNICATING
The learner can communicate effectively using visual, mathematics and language
skills in the modes of oral and written presentations when explaining the terms of the
contract of a selected business entity and the rights and responsibilities of the insured
and the need for reinsurance.
UNIT STANDARD CCFO DEMONSTRATING
The learner can see the world as a set of related systems in identifying changes in the
structure of the Financial Services Sector and indicate the impact on the sector and
the consumer.
UNIT STANDARD ASSESSOR CRITERIA
N/A
UNIT STANDARD NOTES
N/A
All qualifications and unit standards registered on the National Qualifications
Framework are public property. Thus the only payment that can be made for
them is for service and reproduction. It is illegal to sell this material for profit.
If the material is reproduced or quoted, the South African Qualifications
Authority (SAQA) should be acknowledged as the source.
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