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The fraudulent world of insurance explained

Deputy Secretary of Financial Policy at the Ministry of Finance and Economic Development Elaina Gonsalves said the lack of trust in the world of insurance conceives fraudulent activities which costs the insurance industry approximately US$ 80 billion according to latest global statistics.

Gonsalves raised this point this week when launching new players in the industry; Western Insurance Botswana and Western Life Insurance Botswana. The two are part of the Western National Insurance Group, a subsidiary of the renowned PSG Group in South Africa. Gonsalves said trust is the core of the insurance industry.

Gonsalves gave a scenario where: “Someone gives a premium to someone else, trusting that the person will deliver when the insured event occurs. Someone receives a premium from someone else trusting that the information received is correct and as a result, the premiums, terms and conditions will allow the cover to be given and the claim paid. This is why the process is susceptible to fraud-fraud by the customer or by someone in the insurer’s employ. Globally, fraud costs the insurance industry approximately US$ 80 billion in 2017.”

The deputy director said insurance entities use many different systems to facilitate the delivery of their promises. She said however to date the only system identified with the capacity to restore trust and transparency in the insurance industry is the Blockchain Technology. Gonsalves told Western Botswana that they should establish trust in their business and use the latest technology to improve their businesses. She said the rest of the insurance industry in this country should shape up or ship out.

“Friends, what am I saying? I am saying that we have to get with the programme or get out of business. As with other service industries, if insurers are not able to provide cutting edge service, then their very survival, let alone success, becomes very doubtful. This requires re-skilled and up-skilling of personnel and change in business models,” said Gonsalves.

According to Gonsalves, the new generation of policyholders expects seamless, individualized and transparent service. The successful insurer is one which can win back the trust of policyholders and potential clients according to Gonsalves. The deputy director said the business challenge is to be innovative and control costs, while responding and exceeding customer expectations.   

Gonsalves hailed the pending Insurance Industry Act as a law which will instill professionalism in the insurance industry.  She said the new legislation will help in combating money laundering and finance terrorism.

“The major changes are; provisions pertaining to identification and transparency of beneficial ownership; provisions concerning kinds, spread and location of assets owned by the company; prohibition of the receipts of premiums by insurance brokers and agents, except under certain circumstances; free choice of insurance cover for assets pledged under loans/leases; disclosure of commissions and fees; provision for insurance agents (corporate) to represent one life and one non-life insurer; and discontinuation of individuals as insurance agents and agents for brokers,” said Gonsalves.

Western Insurance Botswana and Western Life Insurance Botswana began trading in the shores of Botswana in June 2018 and was officially launched on Wednesday. Western Insurance Botswana and Western Life Insurance form part of the Western National Insurance group, which in turn stems from the renowned PSG Group in South Africa.

Western Insurance Botswana is under the captaincy of 12 year experienced CEO Victor Nnoi. Marinda Botes is at the helm of CEO of Western Life Insurance Botswana and has 18 years of experience in the industry. Before expanding its prescience to South Africa in 2007, the Western brand was established in 2004 in Namibia, then expanding into South Africa in 2007.

PSG Konsult, is the direct majority shareholder in the Western group. PSG Group is listed on the JSE with a market cap in excess of R52 billion. Together with the holding company of PSG Konsult, it holds strategic investments in the banking sector through shareholding in the renowned Capitec Bank and the education sector via Curro Schools in South Africa. The PSG Group expanded its footprint in Botswana over the last few years and, through subsidiary PSG Alpha who currently holds a controlling share in CA Sales. Curro Schools has also acquired it first school, Baobab School, in Botswana earlier this year. 

Today, Western boasts an African footprint of 8 offices across the continent and has seen gross written premium exceed R1.2 billion in less than 10 years of trading. Expansion into Botswana forms part of the Group’s Southern African strategy, strategy which also includes business interests in Lesotho. Western Botswana is committed to rethinking insurance, and redefining its delivery for clients across Botswana.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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