'Comply or face the consequences!'

As a number of African countries start to enforce previously dormant insurance legislation, SA traders and their brokers must be aware of the risks involved in trading and insuring goods traded in the African market, according to Peter Lamb, a Durban-based associate at legal firm, Norton Rose Fulbright. “The African transport insurance market is highly regulated,” he told FTW. “There are many statutory insurance regulators in African countries, which, in terms of local insurance legislation, require any assets within that African country’s jurisdiction to be insured with a local insurance company. Often African insurance regulators also require that only locally licensed brokers, loss adjusters and surveyors are involved with the insurance of a local asset. “Failure to comply with these requirements can lead to the imposition of a fine or even imprisonment of the wrongdoer.” And the legal tentacles for the wrongdoer can stretch high up in the transgressor’s management structure, according to Lamb. “In some circumstances the liability for a transgression of the local insurance regulations can lie not only with the insurer or insured company but also with the respective board of directors or managers,” he said. But these growing demands for compliance with local insurance legislation in African countries, and that of local insurers covering the domestic leg, tend to counteract the present insurance practices of SA and international traders. “The African market is dominated by SA and international traders who rely on global transport insurers to underwrite their risk,” Lamb said. “There are very few African participants in the transport insurance market.” This leads to two main problem areas, according to Mike Brews, head of underwriting and marketing at Horizon Insurance. “You are looking at African local insurers who don’t have the rating of SA or international companies. So, effectively, you are being forced to use often-inferior insurers. This is contrary to the current practice, which is for traders and their agents to use reputable insurance companies.” The second problem is a cost factor. “To comply with the local insurance regulations, you are duplicating part of the cost,” Brews added. “This is where an international insurer insures on a global basis, including the domestic leg in the African destination company. But the local legislation effectively demands that you would still have to pay for that domestic leg with a local company.” The risk area comes when an insurer and an company insured company start a recovery action, according to Lamb. “The economic boom in Africa is encouraging more trade in Africa,” he said. “More trade means more insurable assets in Africa – which leads to more insurance claims. Unlike in the past, there is now a business incentive for transport insurers to start recovery actions in Africa as the losses to traded commodities can no longer be ignored.” An insured may think that once he has been indemnified by his insurer and received payment for its loss in terms of his insurance policy that he is no longer involved with the recovery action. “But this is not correct,” Lamb said. “In terms of the doctrine of subrogation, the insurer may commence recovery action either in its own name or in the name of the insured, and the insured is obliged to reasonably assist the insurer with its attempts to recover the loss. “If the recovery action commences in an African country which has a regulated insurance industry, the insured, amongst others, may be exposed to the risk of non-compliance with local insurance legislation.” This is where the heightened risk arises, according to Lamb, and the demand for traders and agents to be alert to the problems which can occur. “With the increase of trade in Africa,” he added, “compliance with African insurance regulations, by both the trader and his insurer, is going to become more important as more recovery actions are pursued in respect of damaged or stolen/lost cargoes.” INSERT & CAPTION You are looking at African local insurers who don’t have the rating of SA or international companies. – Mike Brews