Wednesday, July 6, 2022

Management also to blame for GIB’s collapse – insiders

Insurance industry commentators have castigated the recent KPMG audit report on the circumstances that led to the collapse of General Insurance Botswana for failing to bring the company’s management to task and expose their shortcomings.

While an investigation by KPMG auditors turned up information that GIB may have been a victim of Botswana’s massive insurance fraud, some players in the insurance industry have pointed out that the management of the insurance company are also equally to blame for the doldrums that the company found itself in, which culminated in a high profile court case in which Justice Maruping Dibotelo ordered that the company be placed under provisional liquidation by the Registrar of Insurance.

The KPMG report did not find any instances of fraud by the company directors, Bright Nyirenda, Sophie Tsheole and Khan, but instead revealed that the company collapsed because motor vehicle claims made by clients were in excess of their contributions.

The report revealed that when the company commenced operating in 2002, the initial reaction from the market, and particularly the established brokers, was relatively negative, forcing the company to take on business like the risky motor insurance which insurance companies generally avoided. “Due to the risky nature of motor insurance, reinsurers were reluctant to reinsure and would resort to increasing the threshold for the excess of loss claims, to amounts higher than what the company would normally claim from them. As a result it became increasingly difficult for the company to settle claim’s as and when they arose,” stated the report.

About the same time, GIB was placed under liquidation an anonymous whistle blower, who claimed to be an insider, spilled the beans on massive motor vehicle insurance fraud racket involving police officers, insurance clients, assessors and panel beaters. Claims of insurance fraud gained more credence when three Botswana Police Service Officers, a panel beater and a deputy sheriff were brought before Chief Magistrate, Lot Moroka, on allegations of insurance fraud.

However, some industry players who were close to the GIB saga have revealed that the KPMG report lacks credence and depth in addressing the wider issues that conspired to bring down the company. In a confidential correspondence to The Sunday Standard, the insiders said that the report seems to be loopsided as it seeks to shift the blame off the directors and take advantage of the speculative reports alleging insurance fraud. They said that the speculative insurance fraud stories are themselves said to be highly unreliable as other credible industry sources say they actually form part of a ring of mudslinging and business rivalries among competitors in their fight for a slice of the tiny business within their industry.

“Therefore to attribute the collapse of GIB to this speculative story alone is far fetched and the KPMG investigation failed to address serious management excesses that were at play at the collapse of GIB,” they said.

They went on to reveal that the fact is that at the height of its growth around 2004, GIB management went on an acquisition trail buying off companies, which shifted and divided the directors attention and, therefore, eroded the company’s capital.

They also revealed that in the same year, even when their financial position began to show cracks, GIB management gambled with a decision to run the BDF insurance scheme when they knew that it was not profitable a venture. This exercise, they said, was used as a window dressing deal to show-up the company’s goodwill in the market place.

They also said that the fact that GIB management was unable to mitigate the risks of claims which all insurance businesses in the world face raises questions on their ability to run a successful insurance business. “These are the same market conditions and risks which their peers in the industry have and continue to manage and remain viable enterprises right here in Botswana while GIB failed,” they said.

They also added that it seems that GIB had no financial foresightedness, let alone a coherent contingency plan to manage the company which culminated in the company being overwhelmed by claims from its clients.

Even with a depleting capital base, it is said that GIB continued entertaining claims from clients on the assurance that it would pay them from their re-insurers in South Africa. As a result, a lot of service providers lost huge sums of money when GIB collapsed. The report also suggests that huge motor claims were the cause of capital erosion. But in real fact, they said, motor insurance has always been a low yielding or loss yielding risk which insurance companies generally face even in other countries.

They, therefore, dismissed the report’s suggestion that only fraudulent insurance claims brought down GIB. “This appears as an attempt to exorcise the directors of the sin of total negligence and lack of grip to manage real risks that GIB faced,” they charged. They also claimed to have more material evidence as regards to the real issues that bedeviled GIB.


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