Insurers face risks across entire African logistics chain

A convoy of cargo-carrying trucks in South Africa

Cargo hijackings while in transit in South Africa are on the rise. Credit: Rainer Lesniewski/Shutterstock

Africa’s dynamic and unique risks make the continent unlike any other region in the world, according to a leading figure in the South African marine insurance industry.

Andrew Walker, regional marine loss control manager at AIG South Africa, who will address the International Union of Marine Insurance’s (IUMI’s) annual conference in Cape Town this month, said that there remains room for optimism about the market’s growth, but it could not be likened to other emerging regions.

“The core African marine insurance market remains South Africa, while Kenya, Egypt, and Nigeria are also important markets.

“It is hard to compare Africa with other regions because there are such different risks and economic activities. In terms of value, we are probably somewhere in the middle; not at the bottom but not at the top either,” Walker said.

He added that there is potential for growth despite the challenging global economy.

“The marine insurance markets generally reflect the economy and its trade volumes, so the South African market is likely to remain flat given our poor economic growth,” he explained. “Without a boost to South Africa’s economic growth, the local marine market will remain relatively flat. By contrast, in the rest of Africa, there are more positive developments. Kenya recently completed a revamp of its insurance laws, which indicates that its government sees the need to update its legal framework in order to accommodate increasing trade.

“For the rest of Africa, the outlook is slightly more positive, although coming from a low base. African countries are investing in roads and other big construction projects, renewable energy, and, of course, mining. All of these need materials and heavy equipment to be imported and, in the case of mining, the product exporting,” he said.

“As with most emerging markets, the possibility of a trade war between the United States and China would, however, have an effect on Africa’s prospects.”

Walker noted that domestic insurers play a key role in Africa’s insurance market. “Local insurers dominate in this region and would typically utilise the overseas reinsurance market to a great extent for [additional] capacity or capital.”

He also noted that the issue of piracy on Africa’s coasts remains a concern.

“Thanks to the work of the multinational naval force, piracy on the east coast of Africa has been greatly reduced since its [peak] between 2009 and 2011. These operations, however, have been expensive and there is a possibility that when the force winds down, the piracy threat could increase,” he said.

“On the west coast, particularly in the Gulf of Guinea, piracy is a growing concern. Here the targets are mainly vessels connected to the oil industry, whose cargoes can be siphoned off for sale on the black market. These pirates, who operate in syndicates, are mainly based in Nigeria,” he said. “General cargo vessels are typically targeted not for their cargoes but to hold crews for ransom.”

Walker noted that the threat to cargoes across the continent is a matter of concern for insurers.

“Marine insurance covers the transport of cargoes to their final destination, and this brings its own unique types of risk,” he said. “In South Africa, [incidents of] cargo hijacking while in transit are growing, and these robberies are typically conducted with military precision by heavily armed gangs. High-tech goods, food, and beverages are popular targets because they can be easily resold.

“These gangs appear to be well informed and target specific shipments, implying they have inside informants. AIG is working with clients to help them understand the risks and take preventative measures, such as guarding information more carefully. In order to assess the risks properly, it is imperative to understand the logistics chain, where the goods are being warehoused, and under what security.

“AIG also helps clients identify technologies that will help keep cargoes safer. Many warehouse locations that have great accumulated static values are poorly maintained and often have inadequate fire protection – a slowing economy means less available finances to update and maintain these warehouses – which can result in an increased risk of damage or loss due to a hazardous or highly exposed warehouse,” Walker said.

In the rest of Africa, Walker noted that insurers see cargo crime as more opportunistic and so security at overnight stops is a critical consideration. The primary risks relate more to poor road infrastructure and vehicle maintenance, leading to a greater chance of accidents and delays.

Each region has its own risk profile, but at-risk cargoes include clothing, food, and mobile phones, as well as consignments of relatively high-value specialised minerals being exported.

“In general, insurers and their clients need to understand the entire logistics process from quayside to final destination, including warehousing, in granular detail in order to assess and mitigate the risks properly,” he explained.  

Contact Jon Guy

Read more exclusive reporting from Fairplay on the African insurance industry on 16 September.

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