With businesses reeling from load-shedding, insurers and reinsurers have reassessed their capacity to cover companies for losses related to blackouts or grid collapse.
The risk of the latter comes with possible social strife that could trigger unrest similar to that of 2021.
Sasria said in its corporate report tabled in parliament last week that after assessing the impact of the July 2021 unrest, a degree of reprioritisation meant some of its objectives would be delayed due its deteriorating financial position.
The state insurer for losses suffered from social unrest and disasters added that it was looking to rebuild its capital base after processing claims in excess of R32bn related to that unrest.
“The catastrophic July 2021 events further introduce increased insurance risk, resulting in an increase to the company’s risk exposure and more uncertainty in the underwriting performance. This, combined with the limited capital available after this event, introduced the need for quota share which, incepted in August 2021, will terminate in March 2025,” it said.
Quota share refers to the percentage Sasria covers in a claim.
The report said the unrest highlighted the need to focus on long-term financial sustainability amid future uncertainties and that the government’s role as the reinsurer of last resort heightened expectations that it would intervene in the event of another magnitudinal disaster.
Companies take out business interruption insurance to cover income losses due to disasters such as a fire.
Soul Abraham, CEO for retail at Old Mutual Insure, said grid failure was a systemic risk and it was not possible for insurance companies to protect against such risk. He said reinsurers had indicated they would not be able to cover national grid interruption.
“Old Mutual Insure introduced a national grid interruption exclusion in 2022, effective for new policies from August 15 2022, and for an existing business in our personal lines and commercial business from renewal effective from November 1 2022.
“We started implementing grid interruption exclusions from July 2022 on the insurance of large or complex risks.
“We do not exclude, for example, losses caused by a traffic light not working during a national grid interruption and this then causing a motor vehicle accident or losses due to potholes that were not visible,” said Abraham.
Customers would still have burglary cover during a national grid interruption if the alarm at the risk address was not functional due to lack of battery support, but each claim would be assessed on its own merits, he added.
Pamela Ramagaga, general manager of insurance risks at the South African Insurance Association (SAIA), said each insurer had its own internal metrics and risk assessment systems to inform decision-making on matters such as insurance for escalating load-shedding.
“It is a matter of public record that the largest of SAIA’s member insurers have each communicated on several occasions over the past year their individual decisions in terms of exclusions and premiums.”
A similar situation occurred in the 1970s, when public riots in response to inequalities instituted by the apartheid regime were at their height. Insurers indicated that providing cover for such riots was no longer sustainable and called on the state to provide such cover
— Sharon Paterson, CEO, Infiniti Insurance
Infiniti Insurance CEO Sharon Paterson said “should the power grid fail or power not be restored timeously, the potential cost that insurers and reinsurers would incur arising from business interruption claims, property, fire and theft related to the grid failure would be catastrophic to the sustainability of the South African insurance industry.
“A similar situation occurred in the 1970s, when public riots in response to inequalities instituted by the apartheid regime were at their height. Insurers indicated that providing cover for such riots was no longer sustainable and called on the state to provide such cover,” she said.
Sasria executive manager of stakeholder engagement Muzi Dladla said while Sasria did not cover loss as a result of severe load-shedding or grid collapse, a complete collapse of the grid did have ramifications for the body on the insurable perils front.
Dladla said Sasria had considered instability caused by a possible blackout and the 2021 unrest made the insurer appreciate “the power of preventive measures”, such as the integration of defence organisations, communities, police and the army as part of risk mitigation response.
OUTsurance CEO Marthinus Visser said business interruption insurance did not extend to load-shedding given it was not seen as an insurable peril.
“We have not charged premiums for that type of situation and it cannot be covered. The whole industry, driven by the reinsurance industry, is moving in that direction.
“Fortunately, there is a lot of mitigation action individuals can take, at least in terms of getting generators, installing more solar, upgrading generators and making sure [they] have enough fuel,” he said.
* Additional reporting Dineo Faku
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