Lion of Africa local authorities manager Pride Choruma speaks about the soaring cost of insuring public infrastructure projects and the factors involved.
Lion of Africa local authorities manager Pride Choruma speaks about the soaring cost of insuring public infrastructure projects and the factors involved‚ in this interview conducted on March 28.
BUSINESS DAY TV: The cost of insuring public infrastructure projects in South Africa increased by 100% between 2011 and 2014 ... that in three years … and it’s due to a combination of vandalism‚ theft and poor workmanship by unqualified contractors. Pride Choruma‚ who is local authorities manager at Lion of Africa Insurance‚ joins me now in studio with more perspective on this issue.
On the headline basis alone‚ it certainly looks like this is a situation that’s spinning out of control in South Africa. Is that a close reflection of the reality we’re facing?
PRIDE CHORUMA: I’d say that from one perspective it could be a close reality that the cost of insurance is increasing due to the factors that you’ve mentioned … but from another angle also … we need to appreciate that as the volumes are increasing in terms of infrastructure development‚ the premiums will also go up.
BDTV: In highlighting the issues: vandalism‚ theft‚ poor workmanship … to what extent are these risks not being properly mitigated against in the first place‚ taking into consideration that we’re seeing an increasing project pipeline?
PC: Maybe let’s take it back to the municipalities who implement this project. One of the key things that we as insurers encourage them to do is to take out the proper insurance contracts where they actually engage the qualified and the experienced contractors to carry out the work. This in itself we hope will reduce some of the risks that you have mentioned. And if we look at vandalism and the other issues to do with violence leading to the elections … that’s an inherent risk in our environment but with insurance and proper management it can be reduced and it can be managed.
BDTV: With that‚ the focus is placed on the factors that are within your control. So let’s hone in on the fact that government needs to take responsibility‚ and one of the mechanisms recommended‚ as you say‚ is stricter procurement processes‚ quality-control measures when it comes to putting those contractors in place in the first place. What are some of the challenges to getting that right?
PC: The issue is the nature of contracts maybe the government is using to procure the service‚ which need to be reviewed because it puts emphasis or transfers the risk to the contractor to take care of the insurance‚ to make sure that everything is covered. But as Lion of Africa‚ what we are saying is let’s look at risk before it even occurs … let’s put the right contracts in place and let’s also structure the correct insurance cover that will ensure the infrastructure continues to be developed and properly covered in terms of insurance.
BDTV: To what extent is this kind of conversation happening with government‚ with municipalities?
PC: There are a lot of indabas going on … as a leading insurer in local authority‚ what we do is actually go to the municipality workshops where we train them on the risks that they’re facing and how best they can mitigate them … for example‚ as I mentioned‚ putting together proper insurance contracts where maybe as the municipality they take responsibility and then the contractors will just ride along on that policy. That in itself will adequately cover the municipality.
BDTV: What kind of response do you get from government‚ because when it comes to everything … implementation is key to actually getting this on track?
PC: With a lot of the municipalities I must say that there has been a lot of improvement‚ both in terms of systems and even of personnel and they have been responding. But of course‚ some are still hanging on to the past types of contracts where we have such challenges‚ but there has been development and a lot of improvement in terms of putting the right insurance risk-management strategies in place.
BDTV: And adequately securing a long-term risk management process … for them to do that‚ though‚ they probably need incentive to be put on the table … so let’s provide that right now … how much could be saved in terms of insurance spend if government starts getting this right?
PC: I would say immediately by just choosing the right contractors with the correct reputation … and we have done a lot of work that could save them quite a significant premium. In fact‚ by just engaging the risk managers‚ the services that we offer‚ that goes a long way because they look at risk from before the contract starts‚ during the contract and even in cases where there is a loss‚ how to mitigate.
Because one of the challenges … if there is a loss‚ the level of response in some of the government departments is very low and that increases the extent of the loss. But we are saying now if we engage the risk-management principles‚ we can actually mitigate that as well as improve the outcome‚ or minimise the loss that they would have suffered.
BDTV: For the taxpayer‚ what a story like this does is immediately put the spotlight on how much is spent on insurance as opposed to catering to developmental needs that are much needed specifically on the infrastructure side of things. We had the City of Joburg‚ for example‚ increasing its budget on infrastructure maintenance from 2.5% to 7% ... but much of that‚ one assumes‚ is now being spent … not where it should be but on insurance policies…
PC: That’s quite an interesting observation or comment but I would rather say that as the level of infrastructure investment increases‚ definitely the cost of insurance goes up. But let’s look at some of the issues you mentioned earlier … the issue of deteriorating infrastructure … it costs the municipality more to maintain such infrastructure but now with new infrastructure‚ new upliftment such as the City of Joburg is doing‚ at the end of the day it’s benefiting both the taxpayer for the insurance and for the economy at large‚ so it must be commendable.
BDTV: Who is getting it right … are there examples or models that we could be leveraging off?
PC: I would say the City of Joburg has gone a long way. If you sit down with their risk-management team‚ they have done quite a bit of work and they are basing their risk-management strategies on the best practices in the market‚ engaging the services of risk advisers‚ which is a good thing that they have done. After hosting the World Cup‚ for example‚ where‚ as Lion of Africa‚ we participated greatly in terms of insuring most of the stadia. We would assume that there has been a lot of experience gained after such a massive infrastructure project which went well … not many insurance claims and definitely the taxpayer also benefited from that event‚ yes.
BDTV: What are you making of the skills base that we’ve got … government or municipalities having access to that skills pool … because you highlight the fact that we’ve got contractors being employed and who don’t necessarily have the right skills to fulfil the job. Is the lack of skills a problem?
PC: It is a problem in our economy at the moment‚ but it’s something that is being addressed both from a government perspective and from us as the private sector. I also want to mention that we step into the market not just to get premiums‚ but also to educate the client on managing risk‚ improving the risk and other things they can do to mitigate the losses they can potentially suffer.
Source Howzit MSN
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