these structures influence the group to operate

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1 SANTAM NEEDS TO ENSURE that it is aware of and manages its impact on society and the environment however, we also need to ensure that we have appropriate corporate governance structures in place. these structures influence the group to operate as a good corporate citizen. By ensuring that we implement best practice governance guidelines, we can entrench a highly ethical culture within the group and influence the development of a similar culture among our stakeholders. For more information on Santam s approach to corporate governance and risk management refer to our integrated report which is available at Social, ethics and sustainability committee roles and responsibilities 6 Feb 7 May 14 Aug 6 Nov BTPKM Gamedze * * * * MLD Marole (chair) * * * * YG Muthien * * * Res Y Ramiah * * * * Key: (*) = present, (Res) = Resigned The responsibilities of the committee are as follows: Monitoring Santam s activities relating to social and economic development, BBBEE, and employment equity Monitoring good corporate citizenship, including the promotion of equality, corporate social responsibility, ethical behaviour and managing environmental impacts Monitoring changes in empowerment charters and codes Monitoring functions required in terms of the Companies Act and its regulations The committee is also responsible to actively manage the material matters that affect the sustainability of the business. These include: Minimising the risk associated with social, economic and environmental impacts, including stakeholder activism and government regulation Ensuring that the company aligns with legislative requirements such as King III, JSE Listings Requirements, BBBEE, and other applicable legislation Adding value by monitoring and guiding management on: o developing and retaining a sustained client base; o developing solutions to accommodate change inclusive of societal and environmental change; o developing and retaining a sustained supplier base; o having appropriate human capital processes and systems in place; o having a transformed business; o cultivating an ethical culture and combating/curbing economic crime effectively; o applying environmental impact management and practices; o having a sustained intermediary base; o extending influence to the benefit of society; and o applying responsible investment practices. During the committee recommended the targeted level BBBEE contributor status and reviewed the strategy, plans and progress made towards achieving Santam s BBBEE targets. The committee further reviewed the report compiled by the company s appointed BBBEE verification agency which confirmed that Santam had maintained a level 3 BBBEE contributor status. The committee is chaired by an independent non-executive director and comprises a majority of non-executive directors. The committee is supported in its tasks by members of senior management, including human resources, sustainability, stakeholder relations, risk services, corporate social investment, the company secretary and finance. In terms of its charter, the committee meets formally at least twice per annum, or as required for the effective performance of its duties. The social, ethics and sustainability committee is satisfied that it has fulfilled its responsibilities in accordance with its charter for the period under review. The committee members believe that the group is substantively addressing the issues required to be monitored by the committee in terms of the Companies Act. 52 SANTAM SUSTAINABILITY REPORT

2 Fraud and economic crime MATERIAL ISSUE: STRATEGY PILLAR: SANTAM SUSTAINABILITY FRAMEWORK ITEM: Sustainability key drivers: Legislation and compliance InsideOut Initiative Maintaining an ethical culture and managing economic crime m Application of ethical behaviour through the values process aimed at employees; Management of economic crime; Management of ethical behaviour relating to advertising An ethical company is reliable, dependable and trustworthy. This is especially important in our industry where we sell the promise to honour claims. Therefore, we dedicate significant resources to protecting our employees, clients and those around us from the effects of economic crime. It is also important that we operate without overly aggressive sales practices or advertising claims which may alienate clients, damage our brand or erode trust in our business. The impact of economic crime SAIA estimates that South African insurance fraud adds approximately 15% to the price of insurance premiums. Focusing on reducing insurance fraud reduces our losses to economic crime and helps us to extend our reach money lost to Santam is money lost to our policyholders, shareholders and other stakeholders. We have a significant impact on crime both: Directly where we have a direct relationship with the perpetrator, such as fraud, theft and corruption (including bribery and kickbacks); or Indirectly through crimes such as drunken driving, house robberies, business robberies and hijackings which affect the assets we insure by affecting claims frequency. The full impact of economic crime affects us through financial loss, employee morale, business reputation and our relationships with business partners and regulators. We interact with our clients, suppliers and intermediaries in good faith and expect our employees to conduct themselves in a way that is beyond reproach. This is a moral and business decision an insurance company that cannot be trusted to keep its promises is not sustainable. Our primary risks from economic crime come from: Policyholders Fraud mainly inflated and false claims Intermediaries Theft and fraud mainly premium theft and backdating of cover leading to false claims Suppliers Corruption and fraud mainly bribery/ kickbacks, fronting and inflated or false invoices Employees Corruption, fraud and unethical behaviour mainly bribery/kickbacks, false EFT payments and false claims on employee policies We address fraud and economic crime from two angles: We address our internal culture to create an environment in which any form of crime or unethical behaviour is not tolerated. Research shows that a highly ethical business culture decreases economic crime, and increases employee morale, loyalty and productivity. We make it clear to criminals through our actions that we have a zero-tolerance approach to crime any criminal act, regardless of how small the financial loss, will be prosecuted. Our approach has three aspects: Deter and prevent we aim to stop crime before it is committed by entrenching an ethical and honest working environment which feeds into our interactions with those outside the company. We also have controls in place to prevent crime in our business processes. Detect and respond we have accessible and trusted reporting mechanisms. We analyse transactions and data mining information to identify patterns and trends which may point to criminal activity. Where we find evidence of crime, we investigate and apply a zero-tolerance approach. This increases deterrence when people know crime is likely to be detected and vigorously prosecuted they are less likely to attempt it. SANTAM SUSTAINABILITY REPORT 53

3 Recover and redress we aim to recover the maximum amount, ensure that the criminal is appropriately punished and does not re-enter the insurance industry. How we manage employee ethics Santam s commitment to ethical behaviour and the behaviour we expect from our employees is contained in the code of ethics which is regularly reinforced. This is supported by our emphasis on our core values which make up between 5% and 10% of employee performance contracts. Senior management, Exco and the board lead the company s ethical stance, adhering to strict ethical and professional codes of behaviour. Our Business Ethics and Economic Crime (BEEC) policy establishes accountability for management of unethical behaviour and economic crime. It also enables the integration of ethics into the business in a structured approach. Unethical or criminal acts are dealt with in terms of our disciplinary code. Governance structures enable the group to operate as a good corporate citizen. Our approach is guided by the principles contained in King III and the provisions of the FAIS Act, Short-term Insurance Act, Financial Intelligence Centre Act and the Prevention of Crime Act. Economic crime awareness and training sessions are held across various functions, including claims and contact centres, as well as training on corruption. The focus on ethics and crime is reinforced through our quarterly in-house magazine which is circulated electronically to intermediaries and service providers. Details of our anonymous tip-off line are well publicised and supported by an internal whistle-blower rewards scheme. How we manage economic crime We take a broad proactive approach to managing economic crime with measures in place to prevent and detect economic crime. These include: Fraud risk management initiatives that improve processes and controls to mitigate identified key fraud risks. When key controls may have failed, these situations are analysed and the controls are revised to improve future compliance. A full-time forensic auditor has been dedicated to this role. Workshopping of fraud risk profiles with business units to identify and rank the most important risks. These risk areas are analysed and risk strategies are formulated to complement enterprise risk management (ERM) processes and risk registers. This will ensure that all risks relating to economic crimes are addressed. Transaction monitoring flags higher potential risk transactions for closer attention. The claims business unit makes extensive use of predictive claims modelling in certain higher risk areas. Flagged claims are passed on to a dedicated external team for detailed merit assessments. Data mining and analysis. We have streamlined our internal processes and installed case management software to support our zero-tolerance approach to criminal behaviour. This ensures that cases handed over to the police have the best chance for successful prosecution. We also take a high-level collaborative approach to address the wider systemic impact of crime. We analysed the types of crimes, how the police report them and how these impact on the insurance industry. We have identified where we, as an industry, are doing things to address these issues and areas where we are not doing anything. 54 SANTAM SUSTAINABILITY REPORT

4 Measurement Tip-offs received SAPS reported cases Includes enquiries received from the South African Insurance Crime Bureau (SAICB) Stakeholders engaged to date are: The Economic Crime Forum (ECF) The ECF brings together representatives from the insurance industry, provincial government, the South African Police Service (SAPS), the National Prosecuting Authority (NPA) and Business Against Crime. The forum aims to improve networking and communication, understand the blockages in the investigation and prosecution of insurance-related cases and improve the conviction rate of economic crime that is reported to SAPS. The South African Insurance Crime Bureau (SAICB) The SAICB is to be the fusion centre and leading authority on fighting organised crime in the insurance industry. The SAICB continued with initiatives focused on vehicle-related crimes. Several industry investigations were finalised during with the arrest of various suspects. A project focused on motor vehicle pounds was registered with the SAPS. We believe that increased crime statistics indicate that we are improving at uncovering crime we are finding more crime that is already happening, rather than seeing an increase in the level of crime. As a percentage of total claims paid out, fraud was 0.24% in ; a decrease from 0.27% in Key highlights FOR Aspirations for 2013 Set and sustain new targets for measuring ethical risks. Roll out training on the new code of conduct. Roll out code of ethics to suppliers and other business partners. AN ETHICAL COMPANY IS RELIABLE, DEPENDABLE AND TRUSTWORTHY. Our redrafted code of ethics was rolled out across the company. We are participating in the 2013 National Business Ethics Survey (NBES) which was conducted by the Ethics Institute of South Africa (EthicsSA) in the last quarter of and first quarter of SANTAM SUSTAINABILITY REPORT 55

5 Responsible Investment MATERIAL ISSUE: STRATEGY PILLAR: SANTAM SUSTAINABILITY FRAMEWORK ITEM: Sustainability key drivers: Transformation Manage the risk pool Responsible investment r Direct investment to address social, economic and environmental needs Santam, in its Group Investment Policy, subscribes to the UN PRI as well as the Code for Responsible Investing in South Africa. Santam s investment portfolios are managed by Sanlam Investment Management (SIM), a signatory to the UN PRI, which laid down a framework guiding investors on how to incorporate ESG issues into their decision-making and ownership practices. SIM has developed (and publicly disclosed) a variety of frameworks and policies dealing with proxy voting, guidance on the approach to social and environmental sustainability and the management of conflicts of interest. SIM applies these frameworks to the portfolio investment environment, of which Santam s investments form part. Santam Resilient Investment fund and the funding extended to Ground Up (refer to page 47 for more detail). In previous years we reported on targeted investments under the old FSC targets. The finalised FSC no longer refers to targeted investments and aligns with the dti CoGP. Enterprise development On a cumulative basis, Santam met the dti CoGP target spend of 3% of Net Profit after Tax, resulting in full points being scored for this element of the scorecard. Key highlights FOR The Santam Resilient Investment (SRI) Fund The groundwork for the SRI fund (which was established in 2013) was laid in. Its primary objective is to fund small to medium businesses in our supply chain that have a positive impact on our systemic risk (which includes economic, social and governance risks that are relevant to the Santam group). A requirement of the SRI fund is that these businesses are also majority black owned and therefore qualify as enterprise development initiatives under the current codes. The amended BBBEE codes out for commentary are likely to be released during 2014 and the revised enterprise development focus will be on supply chain development. This fund positions Santam to benefit under these revisions. Santam also makes direct investments through enterprise development initiatives in line with the dti CoGP and FSC. Examples of these are the investments made via the 56 SANTAM SUSTAINABILITY REPORT