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Correctly structured insurance is vital for companies moving into Africa

One of the biggest challenges facing multinationals moving into Africa from South Africa or globally is their failure to correctly structure their insurance programmes, which leads to a breach in insurance regulations and the significant penalties and difficulties which can occur thereafter.

Many companies already established on the continent have structured risk committees to manage certain aspects of risk, but for global companies with no footprint in Africa managing this risk can be a nightmare as specific knowledge and experience is required to structure these kinds of programmes properly. Structuring insurance packages which respond to the intricacies of local markets is something that requires applied in-depth market knowledge and tried and trusted on-the-ground experience.

The scale of Africa means that the regulatory landscape is fraught with interpretation difficulties due to the different rules and regulations in each country, with many global operations unaware of the implications of the non-compliance with these laws and regulations. Trouble ensues after a company has not adhered to the proper rules and a significant loss is then incurred. This leads to the involvement of local regulators who insist on heavy penalties, which result in further losses to companies to correct their compliance regiment.

Cover for a risk must be arranged for the country of origin of that risk, or claims will be paid in the country where the policy was arranged. For example, if insurance is bought in South Africa for a risk in Nigeria, the claim will be paid to the client in South Africa in rands. This can cause all sorts of complications around taxation, forex and accounting balance sheets, as well as be in direct contravention of local legislation.

This said, many of the large construction players have paid their school fees in Africa, and there is a good understanding of the implication of loss and insuring correctly, but the need for better education to stop big mistakes from being made by other companies as they start to trade more extensively in Africa is vital.

Alvin Dye is the divisional executive of Marsh Africa’s construction division.

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