Considering that short-term insurers spend upwards of R21-billion in claims a year and R8-billion in settling motor claims alone, the scope for genuine grassroots black economic empowerment (BEE) is vast, according to Bruce Campbell, MD of Mutual & Federal.
Of the R21-billion, approximately 50% is settled in cash directly with policyholders and the balance is paid to suppliers ranging from motor repairers to builders, according to Campbell.
“In terms of the Broad-Based Black Economic Empowerment Act, companies’ procurement policies must start reflecting the demographic make-up of the country.
“The Financial Sector Charter targets are set for review in 2005, but the current parameters suggest sourcing 50% of procurement needs from black-owned companies by 2008, and 70% by 2014,” says Campbell.
At current levels of spending, that means directing more than R5-billion towards BEE companies by 2008, and R7-billion by 2014.
“This requires a major restructuring of insurers’ supplier networks and won’t be easy to achieve for the simple reason that, as things stand, there are insufficient black-owned businesses in the building and motor-repair industries,” says Campbell.
In a recent City Press article, Gari Dombo, senior executive at Alexander Forbes Personal Services, pointed out that in the absence of a specific charter governing this multimillion-rand industry, it will take a long time for meaningful transformation to take place.
Achieving BEE equity ownership targets in mining or financial services, while by no means easy, nevertheless appears to have advanced significantly over the past two years.
“It’s a different issue when we get to short-term insurance procurement targets, where a large proportion of the supply chain is owner managed. This, I believe, will be the litmus test for BEE.
“Given the public debate over broad empowerment versus enrichment of the few, procurement is the area where BEE is likely to make its most meaningful advance, because it will involve thousands of suppliers, big and small, where the barriers to entry are not insurmountable.
“These companies in turn will have the capacity to provide employment opportunities to a great number of historically disadvantaged South Africans,” says Campbell.
“Let’s look at some of the practical difficulties. The problem with panel beating, for example, is the multitude of service providers and the need for insurers’ to protect themselves against variable business practices through service level agreements.
“There are very few formal-sector BEE panel beaters with whom insurers are able to contract, although there is a vibrant informal sector of motor-vehicle repairers. The challenge is to integrate these informal businesses into the formal sector and familiarise them with the quality standards and business processes of insurance companies.
“This is easier said than done. Insurers lack the capacity to get involved in the mammoth task of training and grooming hundreds of small panel beaters, as this diverts attention away from their core businesses.
“This is a job best left to the industry associations and others better suited to this endeavour, though insurers are assisting in benchmarking quality standards and familiarising BEE firms with the business process.
“Bringing informal businesses into the formal sector on its own will not solve the problem. A whole new generation of car mechanics, panel beaters and the like will have to be trained and this will require the involvement of sector education training authorities, among others.
“The implementation of an industry charter for the auto-repair industry would go a long way towards creating a vibrant industry in which historically disadvantaged South Africans will have a powerful foothold,” says Campbell.
“At Mutual & Federal, we settle approximately 450 000 claims a year, and for this we depend on a vast supplier network. We need to foster a partnership between established and emerging panel beaters, while insurers could accelerate the sector’s transformation by directing non-structural work (such as painting) to emerging businesses.
“Apart from this, we need to marshal every available resource to get training and business development happening on a broad scale,” says Campbell.
There is a huge amount of work to be done to achieve the required procurement targets. It will involve government, manufacturers, insurance assessors and panel beaters and others involved in the value chain.
Done properly and with the right amount of dedication, this has the potential to deliver the kind of broad-based empowerment originally envisaged by the government, Campbell believes. — I-Net Bridge