The short-term insurance sector is making headway in meeting Financial Sector Charter (FSC) obligations to allocate at least 50% of procurement spending to black suppliers by 2008 and 70% by 2014.
Bruce Campbell, CEO of Mutual & Federal, says this will have a dramatic and positive effect on grass-roots empowerment. The FSC requires at least 50% of procurement spending to go to black suppliers by 2008 and 70% by 2014.
The insurance sector spends more than R9-billion a year on vehicle claims, which means that R3,5-billion of this must be directed to black suppliers by 2008.
“Short-term insurers are making headway in meeting their FSC obligations. Make no mistake, given the dearth of black suppliers in key areas such as panel beating, tow truck operators and the like, the charter targets will not be easily reached. But what the charter has done is force insurers to start identifying potential black suppliers, and familiarise them with the quality standards and business processes of insurance companies. This will require a massive shift in supplier networks over the next few years.”
Campbell adds that white suppliers are being encouraged to bring black partners on board, and many realise that their future business survival depends on the energy with which they embrace black economic empowerment.
“This is the kind of grass roots empowerment envisaged in the Broad-Based Black Economic Empowerment Act, where many hundreds of relatively small to medium sized businesses gain access to a substantial procurement pipeline,” says Campbell.
“Given the scale of spending on claims by insurers each year, this sector will play a crucial role in bringing small, black and informal businesses into the economic mainstream.”
Any discussion of black economic empowerment tends to focus on the big corporate deals at the level of equity ownership, but very little attention is paid to transformation at the bottom of the pyramid, where all of the small businesses fight it out for a piece of the economic pie, says Campbell.
“Transformation is slower at this level, but is nevertheless starting to occur as larger customers with charter obligations start enforcing transformation further down the supplier chain.
“There is a vibrant informal market for services such as panel beating, parts procurement, mechanical workshops and the like, and many of these businesses — with the help of industry associations and insurers — are starting to make the transition to the formal sector. Insurers do not have internal resources to train and groom hundreds of small suppliers, but we are lending assistance to industry associations so that these SMEs understand our business processes, our standards of ethics, and our quality standards.”
Campbell says Mutual & Federal processes about 400Â 000 claims a year, representing a total payout of more than R4-billion a year of which approximately two thirds represents settlements in cash and one third in procurement of goods and services purchased.
“Our claims department spends a considerable amount of effort in identifying suitable black suppliers, assessing their quality standards and, where this is found wanting, helping them to raise standards.
“But insurers will not reach their charter targets if we rely solely on the existing pool of black-owned suppliers. We need to start training a new generation of car mechanics, panel beaters and other artisan skills, and this is a job best left to the Sector Education Training Authorities and industry associations.
“The attainment of the targets under the Financial Services Charter, is dependant on the establishment of similar charters in key industries including the auto industry. This will assist in setting specific targets for different parts of the supply chain, taking cognisance of the critical shortage of black-owned businesses in services such as panel beaters. Such a charter could also set targets for the training of new artisan skills and create mechanisms for achieving realistic targets, he said. – I-Net Bridge