First published in ITIJ 85, February 2008
Roger St Pierre ponders the future of South Africa, its inbound and outbound travel industries and their impact on insurance matters
South Africa stands like a beacon at the tip of the continent. If the light stays green, democracy survives, the economy continues to grow and the rich/poor divide can be eroded, and then the ripples of stability and prosperity will spread all over Africa – which, given its massive reserves of human talent and physical resources should by rights be one of the most prosperous places on earth.
If it turns red, with an economic downturn, a big rise in the already far too high unemployment rate and the political scene destabilised by events in neighbouring Zimbabwe, then the portent would not be good.
At this point in the nation’s history, nobody can be sure whether the signs are presently at red and amber or amber alone. A rapidly developing economy points one way, high big-city crime rates and the curse of HIV/AIDS another.
It is this lack of a clear crystal ball view of the future that makes many South Africans question just where their future lies. Yet, after an initial settling down period following the end of apartheid, most of the middle and upper classes (still largely white but with a fast-growing black element) are staying put in their homeland and staying true to the dream of building a real ‘rainbow nation’, as Nelson Mandela has called it.
Certainly, foreign tourists are getting the message, and according to Keith Betton at the Association of British Travel Agents, the country is now one of the long-haul tourism hot-spots for European holidaymakers. Also pushing up the figures has been a recent strong growth of inbound tourism from neighbouring Botswana and Zambia. 2007 produced South Africa’s highest levels of inbound tourism since 1998, according to figures released recently by minister of environmental affairs and tourism, Marthinus van Schalkwyk – though spend per head is weaker than might be hoped. What draws the visitor is not just a beautiful landscape, superb beaches (even if the water’s cold!) and the exciting prospect of seeing the fabled ‘big five’ at one of the many game reserves, but also the magnet of a vivid and highly varied culture, from the wild beats of the townships to the refined classical music scene.
The staging of the 2010 football World Cup in South Africa will certainly provide a major boost, and industry experts are predicting a close on 30-per-cent accumulated growth over the next five years. The effect of increased arrivals from wealthier nations such as the UK, Germany and the USA is expected to grow spending by an even higher amount, with figures of a 60-per-cent increase or more being bandied about.
With 10 very modern airports able to accommodate the largest jet aircraft, good, if often very busy and dangerous, main trunk roads and an extensive railway system, the country has a transport infrastructure that encourages substantial internal tourism. Increased disposable income and major marketing and advertising campaigns have had an impact in the home market, though the South African Tourist Board confesses that, while the top end is well served, there is still a lack of affordable accommodation and attractions for rather less well-heeled locals.
"2007 produced South Africa’s highest levels of inbound tourism since 1998"
It is estimated that some 1.2 million South Africans – that’s around three per cent of the population – travel abroad annually, around half of them staying on the African continent and mainly visiting such neighbouring attractions as the Namibian deserts and Victoria Falls.
Further afield, the most popular destinations are, in order of popularity, the UK, the US, Australia, Mauritius and Germany. Cape Town and Johannesburg are the main airports for departing international flights. The majority of these people travel between July and September, during the middle of South Africa’s winter period.
Most travellers use travel agents to plan their trips, usually booking between six and eight weeks before departure, and agents see travel insurance as a strong added-value element to any package, though they face increasingly fierce competition from the banks, insurance brokers and direct sell. The Internet has failed to make a real impact – at present just one in 10 South Africans has access to the worldwide web, compared with half the adult population in the UK.
With the exception of the airlines and other major players, the tourism industry has yet to realise the potential of the Internet as a distribution channel and many of the sites are slow to access and poorly put together, despite the switch from modem connection to broadband. “As a nation we seem to be lagging behind in the hi-tech communications sphere,” comments Johannesburg-based travel consultant Andreis der Molde.
The insurance market has been rather quicker on the uptake, and travel cover can easily be purchased online. Typical of the providers exploiting this new route into the market is OUTsurance, a long established South African general insurance operator. A spokesperson for the company commented: “Unfortunately, many South Africans are not very insurance savvy and just don’t seem to realise that medical costs incurred abroad can be astronomical compared to those in South Africa, and that in many places treatment can even be denied if you can’t produce either the funds or the travel insurance documents that will ensure the bill gets paid.”
World Nomads has long been among the South African travel insurance market leader, providing its policyholders with an online claims system and extensions from anywhere in the world. Their policies mirror those available in other markets, covering medical expenses, medical evacuation, cancellation costs, funeral costs, dental treatment, loss or theft of luggage and personal effects and so on. As is the case across the global market, the company has been experiencing a major growth in demand for annual as opposed to single trip policies, reflecting the South African population’s move towards taking several shorter vacations a year rather than one big one.
Almost all of South Africa’s short-term insurance companies are represented among the 52 members of the South African Insurance Association (SAIA), which was founded 27 years ago and is an active participant in steering the industry by representing its members in other organisations and initiatives, both inside and outside the insurance industry, as well as lobbying government and other public bodies. It also administers the Intermediaries Guarantee Facility Ltd. The organisation’s board has set its priorities as transformation of the industry to meet the needs of today’s world, improving the industry’s image and reputation, tackling consumer issues and dealing with regulation concerns.
"The South African insurance industry is in excellent shape, with many insurers posting record profits"
The South African insurance industry is currently in excellent shape, with many insurers posting record profits in recent times. Some have put these figures down to increased consolidation reducing the number of alternative suppliers and thus giving scope for premium increases, but the SAIA contends that there is still a strongly competitive element to the industry and that increased profits are actually due to the focus on scientific and sober underwriting that has resulted in a hardening of rates and positive underwriting results.
It should be noted here that market penetration in the non-life insurance sector actually decreased by 1.9 per cent in dollar terms during 2006.
As a mature market, the South African insurance industry features such key foreign players as Royal Sun Alliance, Libano Suisse and Mitsui Sumitomo alongside the local companies.
Another South African enigma emerges when one looks at healthcare provision. This is the country that pioneered heart surgery, is world-class in ongoing medical research, and produces some of the finest, best-trained medical practitioners on the planet yet where healthcare facilities, especially in the poorer rural areas, are basic, inefficient and grossly underfunded. Nor has it helped that so many of the best, most skilful healthcare professionals have been lured away to wealthier countries, especially the US and UK, where they have a high reputation and can earn much bigger salaries.
It’s true that the state funds around 40 per cent of all healthcare expenditure, accounting for around 11 per cent of the government’s total budget, but with that money the public health system has to treat 80 per cent of the population.
There have been major improvements of late, with hundreds of clinics built and some 2,300 being upgraded and receiving new equipment. Recently, close on 450 doctors have been brought in from abroad, mainly from Cuba, to make up the shortfall, but the medical ‘brain drain’ is likely to remain a problem.
South Africa has no reciprocal health agreements with other countries, and everyone – even citizens and residents – has to pay something for treatment, though charges are far lower than in most developed countries. The maximum consultation fee, for a top earner, is just R55 (US$8). Private clinics and hospitals too are less expensive than elsewhere, and around 18 per cent of South Africans have private medical cover. Two of the largest operators are Netcare, with 43 hospitals and 18 clinics and Medi-Clinic, with some 35 hospitals. In 1997, the country had just 161 private hospitals. That figure had risen to 200 by 2004 and continues to grow.
An offshoot of Netcare is the Netcare 911 rapid response emergency service, which operates the nation’s largest fleet of response vehicles – including cars, ambulances, helicopters and fixed-wing aircraft.
Largely because of the country’s rather high levels of traffic accidents, public ambulance services are often stretched to breaking point and travel insurers will usually call on the private sector to tend to their policyholders.
International SOS South Africa’s alarm centre, located in Johannesburg, is another operation that specialises in delivering quality medical assistance and evacuation throughout Southern Africa. According to a company spokesperson: “South Africa is the medical hub for the whole of Africa, and in response we have rapidly developed our medical transport services throughout the continent to facilitate quick access to appropriate medical care. We operate a full-scale, 24-hour alarm centre in Johannesburg. It’s equipped with sophisticated telecommunication systems to back up our state of the art medical transport provision. We promptly respond to calls from our clients for medical, roadside and legal assistance on a national basis and our representatives then dispatch whatever service is needed, through our network of more than 5,000 service providers in South Africa alone.”
Netcare 911 has the largest and most advanced air ambulance fleet in Africa – indeed, the continent’s only fleet of dedicated doctor-based jet air ambulances – undertaking more than 500 rescue flights a year and reaching as far as Gabon, Ethiopia, Kenya and West Africa, as well as such Indian Ocean islands as Mauritius and Madagascar. Shorter-haul flights cover South Africa and its closest neighbours, especially Zambia, Botswana, Angola and Mozambique.
Also in the skies over South Africa is AMS (the South African Red Cross Air Mercy Service, to give the operation its full name), which, since its creation in 1966, has continually expanded its services and fleet to provide a comprehensive emergency aeromedical and rescue service to the Western Cape and Mpumalanga, as well as health outreach programmes for the more remote communities of rural KwaZulu-Natal and the Northern Cape, which previously had no access to even basic healthcare services.
Emergency Air Ambulance and Rescue Services provides air evacuation to medical facilities in major centres for thousands of critically ill or injured patients. Through such activities, scarce resources such as advanced life support paramedics are now available rapidly to serve rural towns and villages, rather than having to spend hours completing difficult road transfers.
Living up to the ‘rainbow nation’ vision, South Africa is certainly ethnically diverse, with by far the largest white, Indian and mixed-race communities in all Africa and some 11 official languages, though it is English and, to a lesser extent Afrikaans, a Dutch dialect, that dominate the business scene. Some 80 per cent of the population is black, but they come from a range of tribal and linguistic groupings, speaking nine different languages in all, who have not always got along very well.
Fronting both the Atlantic and Indian oceans, South Africans have borders with Namibia, Botswana, Mozambique, Swaziland, the Lesotho enclave and troubled Zimbabwe, all of whose economic and political futures are inextricably linked to what goes on in South Africa. The depredations of Robert Mugabe aside, it is South African companies and South African business people who determine most of what happens economically immediately beyond the country’s frontiers. With its well-developed social and business infrastructure, South Africa is clearly the powerhouse of the region, boasting the largest economy in Africa and the 24th largest in the world.
"South Africa has no reciprocal health agreements with other countries"
South Africa’s income per capita might be the highest of any of the region’s larger countries and fourth highest in all, behind only the Seychelles, Botswana and Spain’s Moroccan enclaves of Mellila and Cueta, but the levels of income disparity are among the highest in the world and, according to government statistics, average income actually decreased between 1995 and 2000 and has only over the past five years slowly started to improve. Given the inequalities of distribution, the figures are rather meaningless but, for the record, estimated GDP (PPP) for 2007 stood at a total of US$587.5, which equates to US$13,300 per capita. Worryingly, unemployment still racks up at more than 25 per cent among the 17-million-strong workforce, and many families exist at subsistence level. It remains an uncomfortable fact that the average white household has an income more than five times that of an average black one.
Presently, and probably for the foreseeable future, South Africa runs a dual economy. Yes, strong growth has been seen – nationally standing at around 5 per cent per annum at present – but it has largely been localised around the Cape Town, Port Elizabeth, Durban and Johannesburg/Pretoria metropolitan areas, beyond which, despite concerted efforts by the government, development has been marginal, poverty prevails and most transactions take place in the black economy.
Though President Taboo Mbeki, who is up for re-election this year, promised when he came to power on Nelson Mandela’s retirement in 2000 that he would promote foreign inward investment and, through it, economic growth, by relaxing labour laws and stepping up privatisation, his policies have been strongly opposed by organised labour.