Our risks
OUR RISKS AND OPPORTUNITIES
Our robust risk management approach supports our strategy's implementation and enables us to identify opportunities.
AfroCentric’s risk management is overseen by the Board and its sub-committees and managed by governance structures. These structures are chaired by senior management team members and are accountable to Board sub-committees. Risk management processes are effectively governed and managed by the Group risk management function.
We strive to mitigate risks and identify opportunities with our robust risk management processes.
Enterprise risk management (ERM) framework
AfroCentric’s ERM framework is aligned with King IVTM principles, the Committee of Sponsoring Organisations of the Treadway Commission’s (COSO’s) ERM framework, and the International Organization for Standardization (ISO) 31000:2018 risk management framework. The ERM framework provides a structured and systematic enterprise-wide approach to risks within the Group.
We gain insight into our risk landscape by considering external and internal factors that could positively or negatively influence our strategic objectives.
Reporting, communication and consultation
The Board and senior management receive regular reports on the risk profile.
Training promotes risk management across the Group.
Identification
Strategic risks are identified at Group level and cascaded down to business units, which identify operational risks through their respective risk registers.
IT, cybersecurity, economic/growth, people, regulatory and compliance, financial, legal, and internal and external fraud risks and opportunities are identified.
Analysis
The Group assesses the likelihood of the risks in the absence of controls and provides a residual risk rating. The Group has Board-approved risk quantification levels to measure the potential impact of risks.
Evaluation
The risk management system is regularly assessed by the Group, which implements internal controls for each risk.
Categorising residual risks
Each residual risk is categorised as high, medium or low impact.
Formulation of risk mitigation strategies
The Board approves the risk management policy and framework. The Risk Appetite and Tolerance Framework is also defined and approved by the Board.
Monitoring and reviewing risks
We consistently monitor ERM and regularly conduct comprehensive risk assessments.
Overview of our top risks and related opportunities
Please see our material matter discussion for information on how our top risks are integrated into our materiality process.
Strategic stakeholder engagement
Impact on value creation/preservation and potential for value erosion
Failure to proactively communicate and manage issues or risks with key stakeholders could lead to misaligned expectations, reputational damage, and erosion of trust, leading to value erosion.
Response and mitigating actions to preserve value:
- Implementation of a comprehensive stakeholder engagement plan
- Ongoing monitoring and reporting of service level agreements
- Regular and transparent engagement with stakeholders to ensure alignment and manage expectations
Identified opportunities to create value:
- Strengthen relationships with stakeholders through proactive communication: Reinforce our reputation as a trusted partner by anticipating concerns and engaging transparently
- Build trust and loyalty by exceeding expectations: Transform stakeholders into advocates by consistently surpassing their expectations
Board committees overseeing the risk
Affected strategic priorities and capitals
Profit and earnings optimisation
Impact on value creation/preservation and potential for value erosion
Maintaining our ability to meet budget and growth targets in headline earnings is crucial for preserving investor confidence and ensuring we can continue to reinvest in strategic initiatives that drive long-term growth and value creation.
Response and mitigating actions to preserve value:
- Review of monthly financial results by Group Exco
- Monitoring of the Group’s performance against the budget/forecast
- Quarterly and annual review by the Investment Committee of the Group’s performance
- Monthly review of the results by the Group Executive Committee
- Quarterly reviews of the Group results by the Board
Identified opportunities to create value:
- Identify and capitalise on growth opportunities through regular financial reviews: Use insights from frequent assessments to drive growth and improve performance
- Optimise budget allocations and financial efficiency through performance monitoring: Apply data-driven insights to strategically adjust budgets for maximum efficiency
- Realign strategic priorities during quarterly and annual reviews: Use these reviews to refine our strategic direction and support sustainable growth
Board committees overseeing the risk
Affected strategic priorities and capitals
Concentration risk
Impact on value creation/preservation and potential for value erosion
A significant portion of our Group income is associated with a few key clients. While this focus has been beneficial, it also presents a potential risk to income stability if these clients were to face challenges
Response and mitigating actions to preserve value:
- Invest in the growth of primary health insurance
- Intensify revenue diversification by expanding all subsidiary businesses
- Refocus growth efforts outside of South Africa to mitigate geographic and political risk
Identified opportunities to create value:
- Unlock new revenue potential: By fully capitalising on the growth of primary health insurance, we can explore innovative product offerings and expand into untapped markets
- Expand our market footprint: Diversifying into new regions and businesses not only mitigates risk but also positions us to seize emerging opportunities in less saturated markets
- Enhance organisational resilience: Focusing on geographic and political diversification helps us build a more resilient business model that can adapt to global and regional shifts
Board committees overseeing the risk
Affected strategic priorities and capitals
Strategic execution risk
Impact on value creation/preservation and potential for value erosion
The Sanlam/AfroCentric integration presents significant opportunities for growth and value creation. However, the process also carries potential risks, particularly to our reputation and growth prospects, if not executed effectively. Failure to manage these risks could impact our ability to fully realise the strategic benefits of the integration and preserve long-term value.
Response and mitigating actions to preserve value:
- Performance tracking and monitoring are ongoing to ensure that the integration delivers the expected outcomes
Identified opportunities to create value:
- Drive strategic alignment and operational synergy: Through a honed focus on integration, we enhance our ability to execute on strategic priorities and realise long-term value
- Advance continuous value creation: Leveraging performance monitoring, we can ensure ongoing optimisation of the integration process, driving sustained value and growth
Board committees overseeing the risk
Affected strategic priorities and capitals
System stability/availability
Impact on value creation/preservation and potential for value erosion
Unreliability of critical IT systems poses a significant risk to business continuity, potentially leading to operational disruptions, decreased productivity, and reputational damage.
Response and mitigating actions to preserve value:
- Remediate outdated or unsupported hardware and software
- Leverage synergies with Sanlam for better integration
- Refresh virtual environment infrastructure to improve system reliability
Identified opportunities to create value:
- Enhance business continuity: Strengthen operational resilience by upgrading and maintaining IT systems, ensuring continuous availability
- Optimise IT performance: Address system stability proactively, reducing the risk of disruptions and enhancing overall productivity
Board committees overseeing the risk
Affected strategic priorities and capitals
IT infrastructure
Impact on value creation/preservation and potential for value erosion
Obsolete and legacy IT infrastructure that has reached the end of life and is no longer supported presents significant risks to business continuity
Response and mitigating actions to preserve value:
- Implement robust infrastructure upgrades
- Conduct comprehensive testing of all components to ensure seamless integration and system stability during critical upgrades
- Maintain a comprehensive testing and contingency plan, including disaster recovery protocols, to mitigate potential risks
Identified opportunities to create value:
- Enhance IT infrastructure: By successfully completing the migration and upgrades, we lay the foundation for a more robust, scalable, and efficient IT environment
- Strengthen organisational resilience: Leveraging the new data centre and updated infrastructure reduces the risk of future disruptions and positions us to better handle IT challenges
Board committees overseeing the risk
Affected strategic priorities and capitals
NHI
Impact on value creation/preservation and potential for value erosion
The implementation of the NHI has significant strategic implications for AfroCentric, particularly regarding the preservation of investor confidence and the stability of Medscheme’s client base. While NHI aims to enhance healthcare access, the uncertainty surrounding its rollout and ongoing legal challenges present risks that could erode investor sentiment. Managing these uncertainties effectively is crucial for maintaining value and ensuring long-term growth in a rapidly changing healthcare landscape.
Response and mitigating actions to preserve value:
- Enhance market position during the transition by maintaining proactive communication with stakeholders
- Engage continuously with key stakeholders such as the NDoH and the Presidency to ensure alignment with strategic goals
- Participate in the BHF collective policy initiatives, including scenario planning for future health system transformations and the role of the private sector
Identified opportunities to create value:
- Shape the future healthcare landscape: Influence policy and NHI implementation through strategic engagement with government bodies and active participation in BHF initiatives
- Strengthen market position: Proactively manage communication with stakeholders to reinforce confidence in Medscheme’s role during the transition
- Diversify revenue streams: Explore new opportunities, positioning the organisation to benefit from changes in the healthcare system
Board committees overseeing the risk
Affected strategic priorities and capitals
Critical skills retention
Impact on value creation/preservation and potential for value erosion
The retention of critical skills, particularly in technology, data science, actuarial science, and clinical fields, is essential for sustaining innovation and operational excellence. Skills shortages in these areas could hinder AfroCentric’s ability to drive growth and maintain competitive advantage, potentially leading to value erosion if not addressed.
Response and mitigating actions to preserve value:
- Fast-track the development of talent pipelines to ensure a steady flow of skilled professionals
- Leverage Sanlam’s resources for talent mobility and skills exchange to bolster AfroCentric’s capabilities
- Continuously review and adjust reward levers to retain top talent and remain competitive in the market
Identified opportunities to create value:
- Enhance strategic talent management: Implement the newly approved Talent Acquisition policy to strategically integrate key talent from Sanlam and other sources, strengthening AfroCentric’s overall talent pool and ensuring long-term capability growth
- Build sustainable talent pipelines: Establish and expand targeted talent pipelines, such as partnerships with academic institutions, to secure a consistent flow of critical skills that support AfroCentric’s strategic objectives
- Optimise recruitment strategy: Explore the centralisation of recruitment activities to streamline processes, increase efficiency, and attract top-tier talent across all critical business functions
Board committees overseeing the risk
Affected strategic priorities and capitals
Membership
Impact on value creation/preservation and potential for value erosion
Economic challenges like poor growth, job losses, inflation, and rising interest rates are straining disposable income, risking membership stability and potential value erosion. However, strategic actions focused on cost control, enhanced services, and targeted growth can preserve and even create value amid these pressures.
Response and mitigating actions to preserve value:
- Implement cost control measures while driving growth in schemes, primary health insurance, and the pharmaceutical cluster
- Balance growth and cost elements across the Group to ensure financial stability
- Design and refine product benefits to better meet member needs
- Enhance client experience and intermediary support by improving onboarding and servicing processes
Identified opportunities to create value:
- Leverage growth in key areas: Despite challenges, steady membership growth in certain segments presents opportunities to strengthen the revenue base and expand services
- Restructure and adapt: Strategic adjustments and service enhancements in response to shifts in client needs can lead to improved retention and new growth avenues
- Expand service offerings: Adding new services and digital solutions provides potential for additional revenue streams and enhances the organisation’s overall value proposition
Board committees overseeing the risk
Affected strategic priorities and capitals
Cybersecurity vulnerabilities
Impact on value creation/preservation and potential for value erosion
The growing threat of cybercrime poses a significant risk to the organisation’s ability to protect critical systems and data from malicious attacks. If not effectively managed, the impact of cybercrime could lead to disruptions, data breaches, and reputational damage, potentially resulting in value erosion.
Response and mitigating actions to preserve value:
- Conduct regular evaluations, including cloud environments, third-party assessments, and compliance reviews across all subsidiaries
- Align with Sanlam’s cybersecurity framework and standards to ensure comprehensive protection and reduce exposure to risks
Identified opportunities to create value:
- Drive innovation through secure practices: Incorporating cybersecurity into all projects promotes a culture of security-first innovation, positioning the organisation as a leader in secure digital transformation
Board committees overseeing the risk
Affected strategic priorities and capitals
