Makolo Kalambaie, Underwriting Head of Financials Lines, Structured Portfolio at SHA Risk Specialists

According to the most recent (Q4 2021/2022) statistics presented by the South African Police Service, there have been over 25,000 cases of commercial crime reported in the first quarter of 2022, representing a sharp year-on-year increase of 13%. In line with this, local businesses have witnessed a sharp rise in cybercrime, impersonation fraud and white-collar incidents perpetrated by senior staff members. For specialist insurers who shoulder the burden of this increasing risk, the market has become particularly difficult to predict and navigate. 

This is according to Makolo Kalambaie, Underwriting Head of Financials Lines, Structured Portfolio at SHA Risk Specialists, who says that sectors that remain particularly susceptible to commercial crime include the warehousing, logistics, FCMG and financial institution sectors. “In fact, the largest commercial crime claim settled by SHA Risk Specialists (SHA), within the last 12 months, amounted to a staggering R27 million.”

High value claims of this nature have necessitated a paradigm shift and a renewed focus on advising corporate clients on how to improve internal controls and procedures to mitigate the effects of fraud. 

“There is a myriad of hurdles to overcome,” says Kalambaie, “including the fact that an increasing number of commercial crime incidents are being committed by senior management. In addition, trends suggest that fraud can be perpetuated for up to five years before it is detected, at which stage the financial damage has been considerably compounded.”

Around 2019, commercial crime in South Africa became so prevalent that it deterred insurers from entering or continuing to invest in the market, with risk appetite for this particular class of liability decreasing substantially.

“By employing several remediation strategies,” says Kalambaie, “SHA has been able to reposition itself within the market, with a more streamlined focus on businesses falling between large corporates and the SME sector.” 

The escalation in fraud exposure has necessitated a shift away from the traditional insurance relationship, where a business would view their insurance purely as a means to transferring all risks to the insurer. The new environment sees insurers wishing to partner with their clients as part of a holistic risk management program. 

“Internal and external auditing, dual signatory systems, a thorough review process of bank statements, background checks on employees and tighter credit controls are among the measures that have become ‘non-negotiables’ to obtain coverage,” advises Kalambaie. 

“In turn, the insurer brings to the table, deeper insights into the fraud risk exposure and can provide recommendations for risk improvement.”

Furthermore, efficient portfolio management and optimal risk transfer between insurers and their clients requires an unprecedented level of transparency and consultancy. Immediate and ongoing communication between client and broker is therefore essential.

“The need for this specialist risk cover is unquestionably apparent,” says Kalambaie.

“In order to maintain the sustainability of their crime portfolio, insurers will require continuous improvement of formal risk management practices and controls. This is the only way to reduce the potential for fraud and other forms of commercial crime, that could otherwise reap devastating consequences in the long run.” 

Clients can expect to provide insurers with a lot more granular information in terms of how the losses are identified, which corrective action was taken and intricate reporting on amounts spent on security and risk management improvements, including advice from external consultants. 

“For SHA, going forward, AI technology will continue to be a key enabler of a more accurate and adaptive underwriting process, which will ultimately allow us to support corporates in managing risk in a way that is mutually beneficial and viable in the long term,” concludes Kalambaie.