South African Insurance Association
PRESENTATION TO THE LABOUR PORTFOLIO COMMITTEE AT THE PUBLIC HEARINGS ON THE EMPLOYMENT EQUITY BILL


The South African Insurance Association is the Trade Association representing the short-term insurance companies operating in South Africa. The total annual gross premium income of our members is in the region of R18Billion. Our currently membership stands at 57 companies and our raison díêtre is to promote the short-term insurance industry in order to create an awareness and understanding of the industry and to add value to all stakeholders.

The South African Insurance Association supports the elimination of unfair discrimination in employment and recognises and supports the need for a workplace which is representative of all the people of this country.

The South African Insurance Association is a member of Business South Africa and is represented on the Governing Body and the Standing Committees on Economic Policy and Social Policy. Through our membership and participation in Business South Africa we fully support and endorse the comments contained in their submission to the Public Hearings on the Employment Equity Bill. We therefore have not included the detail of their submission here, but wish that these be noted as part of our submission.

However, the short-term insurance industry has serious reservations regarding the inclusion of the Turnover threshold in determining a "designated employer" in the Bill. By stipulating that a "designated employer" includes a person who employs fewer that fifty employees but has a total annual turnover that is equal to or above the applicable minimum annual turnover of a small business in terms of the Schedule to the National Small Business Act, 1996 (Act No. 102 of 1996), the Bill will have far-reaching and major repercussions for many of our members.

At our current membership the inclusion of the turnover threshold will adversely affect 44% of our members. Under the previous proposal that "designated employers" be limited to companies with a staff complement of 50 or more, 31 companies (54% of our members) would have classified as "designated employers". By the inclusion of turnover in the definition of "designated employer", 56 companies (98% of our members) are now classified "designated employers".

An insurance company that employs very few employees may have a high premium income. A sample of these smaller companies show that their levels of employment are: 0 employees (4 companies), 3 employees (2 companies) and 9 employees (1 company).

However, profitability of the insurance industry as a percentage of premium income is low. Typically, the underwriting profit of the industry, averaged over time, is only 1% of premium income. Put differently, a company at the current threshold which defines them as a "designated employer", that is R10000000, will make on average underwriting profit of only R100000. Such a company does not have the infrastructure, resources or expertise to implement an employment equity plan. This low level of profit does not allow for the additional expenses that would be incurred in developing and maintaining employment equity plans. Ultimately, the future viability of these companies could be brought into question, leading to job losses. Small and medium sized insurance companies are not in a position to contend with the complex nature of the labour legislation that the Employment Equity Bill will impose upon them.

The use of a turnover threshold will act as a disincentive to possible new investors, both local and foreign, to start a new insurance business in South Africa. This will deprive South Africans of jobs and income, as more insurance premium will be forced offshore. Surely, in a country already struggling with an unacceptably high level of unemployment and job loss, government should encourage future investment and discourage the flight of insurance premium.

The South African economy in general, and the insurance industry in particular, needs to remain competitive in the global economy. By imposing such an all-encompassing definition of "designated employer" in the Bill, the level of international competitiveness of South African employers will not be sustained.

For the reasons stated, our Association contends that the use of turnover as a threshold for defining a "designated employer" is inappropriate for the short term insurance industry. We therefore request that the definition be returned to that originally proposed whereby companies employing more than 50 employees were designated. We do not believe that it could ever have been the intention of the drafters of the legislation that companies employing so few employees would be included.

Barry Scott
Chief Executive
21st July 1998