Short-term insurance of political risks in South Africa

Essel, Rudolf (2012-03)

Thesis (MComm)--Stellenbosch University, 2012.

Thesis

ENGLISH ABSTRACT: Almost all enterprises, individuals and organisations face some form of political risk on a continuous basis. In the past, mines have been lost, terrorist attacks have been devastating, and financial markets have experienced large losses due to political risk factors. We live in an ever-increasing politically insecure world where political risk factors and the analysis thereof receive increasing attention from both international and domestic establishments. From a business perspective, making the correct business decisions and determining the appropriate risk management strategy consequently are crucial to the success of an enterprise, due to the ever-present nature of political risk factors in the business environment. Especially in the emerging market economies of the world, political risk is an important phenomenon. In such emerging market economies, political risk factors could play a role that is as important as the economic factors that are decisive in the performance of markets. It is well known that the emerging market economies of the world have been the main recipients of foreign direct investments. A closer study of these economies has indicated that the majority of such investments have gone to the so-called BRICS countries (the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People‟s Republic of China, and the Republic of South Africa). After having studied the political and economic environments of the BRICS countries, it was concluded that ten political risk factors are common to these countries, namely nationalisation, confiscation, creeping expropriation, currency inconvertibility, breach of contract, non-honouring of government guarantees, war, violent civil unrest, non-violent civil unrest and terrorism. These political risk factors were investigated in a South African context by means of an empirical survey. A census was undertaken that consisted of structured personal interviews (based on a questionnaire) that were pre-arranged with most of the agents who sell Sasria insurance on behalf of Sasria Ltd. These agents mainly were conventional short-term insurers who handled claims on behalf of Sasria Ltd., which placed them in an excellent position to provide the study with valuable information. Violent civil unrest and non-violent civil unrest have not only been the political risk factors that had the most important impact on the total annual claims amount of the respondents over the past five years, but have also been the political risk factors that most frequently resulted in claims. It therefore did not come as a surprise that these were the two political risk factors for which there had been the highest level of demand for cover over the past five years. In terms of the importance of impact, the frequency of claims and the demand for cover, violent civil unrest and non-violent civil unrest are expected to remain the two most important political risk factors in South Africa over the next five years. When compared to the past five years, all the political risk factors (excluding breach of contract) are expected to have an increased impact in South Africa over the next five years. They are also expected to present an equal number or more claims in general. While excluding war and terrorism, the expectation is that the demand for cover against them will generally remain at the same level, but may increase. The South African short-term insurance industry generally faces considerable challenges regarding the cover provided against political risk factors to the public and businesses in South Africa. The industry and the South African public therefore need to be aware of the impact that various political risk factors have on the cover that is provided. This research study should assist the executives of short-term insurance in making better risk management decisions and exercising better control over their responsibilities regarding specific political risk factors in South Africa.

AFRIKAANSE OPSOMMING: Feitlik alle ondernemings, individue en organisasies kom voortdurend voor een of ander politieke risiko te staan. In die verlede was daar verlies van myne, terroriste-aanvalle het verwoesting gesaai en finansiële markte het groot skade gely vanweë politieke risikofaktore. Ons bevind onsself in 'n wêreld van toenemende politieke onsekerheid waarin internasionale sowel as binnelandse instellings meer en meer aandag aan politieke risikofaktore en die ontleding daarvan wy. Vanuit 'n sakeperspektief word korrekte besigheidsbesluitneming en die vasstelling van toepaslike risikobestuurstrategië vanweë die voortdurende teenwoordigheid van politieke risikofaktore binne die sake-omgewing gevolglik van uiterste belang vir die sukses van 'n onderneming. Politieke risiko is veral in die ontluikende mark-ekonomieë van die wêreld 'n belangrike verskynsel. In hierdie ontluikende mark-ekonomieë kan politieke risikofaktore 'n rol speel wat net so belangrik is as die ekonomiese faktore wat deurslaggewend is ten opsigte van hoe markte presteer. Dit is welbekend dat die ontluikende mark-ekonomieë van die wêreld die vernaamste ontvangers van buitelandse direkte beleggings is. 'n Nadere beskouing van hierdie ekonomieë het getoon dat die meerderheid van sulke beleggings na die sogenaamde BRICS-lande (die Bondsrepubliek van Brasilië, die Russiese Federasie, die Republiek van Indië, die Volksrepubliek van China en die Republiek van Suid-Afrika) gaan. 'n Studie van die politieke en ekonomiese omgewings van die BRICS-lande het tot die gevolgtrekking gelei dat hierdie lande tien politieke risikofaktore in gemeen het, naamlik nasionalisering, beslaglegging, kruipende onteiening, onverwisselbaarheid van valuta, kontrakbreuk, nie-nakoming van regeringswaarborge, oorlog, gewelddadige burgerlike onrus, nie-gewelddadige burgerlike onrus, en terrorisme. Hierdie politieke risikofaktore is met behulp van 'n empiriese ondersoek binne die Suid-Afrikaanse konteks ondersoek. Gestruktureerde persoonlike onderhoude (wat op 'n vraelys gebaseer was), is gebruik om 'n sensus te onderneem. Hierdie onderhoude is vooraf met agente wat Sasria-versekering namens Sasria Bpk. verkoop, gereël. Die agente was hoofsaaklik konvensionele korttermyn-versekeraars wat alle eise namens Sasria Bpk. hanteer. Hulle was dus in 'n uitstekende posisie om die studie van waardevolle inligting te voorsien.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/20005
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