Mpumi Tyikwe, CEO of the state-owned South African Special Risk Insurance Association (Sasria), says while it has “completely retracted” a shock April circular informing policyholders they won't be covered for claims related to a grid collapse, this may be only a temporary reprieve.
The circular triggered a backlash from Sasria clients who sell its policies.
“The insurance industry said it hadn't been properly consulted and had questions around certainty of contract,” says Tyikwe. “We have agreed to consult further around these issues. By the end of the month we will have answers and then we'll plot a way forward.”
Botswana had a countrywide blackout on Tuesday, leading to heightened concerns that South Africa, going into winter with stage 6 load-shedding an almost daily occurrence, could go the same way, leading to total grid collapse.
Should this happen while Sasria is plotting “a way forward”, how would it treat claims for damages to assets from the unrest and riots many fear will be sparked by such an occurrence?
“We'll pay those claims,” says Tyikwe.
He says that after the claims Sasria paid out for the riots that devastated businesses in July 2021, it still has reserves of R10bn, which is more than it had before the riots. For damage caused by those riots, Sasria paid out R32bn. The National Treasury had to give the association R22bn to help it cover the claims.
“If today we were to have claims of R32bn or more, we'd require a similar injection from the shareholder,” Tyikwe says.
Does Sasria have any guarantees this would be forthcoming?
“I am engaging the shareholder at the moment.”
But, based on Sasria’s own assessment and the views of “various experts”: “We do not think a complete grid collapse is imminent.”
If there are protests related to load-shedding we will cover them. The area where we are struggling to quantify the risk and make sure we have the necessary reserves to pay for it is when there is a complete grid failure.
— Mpumi Tyikwe, CEO, South African Special Risk Insurance Association (Sasria)
In that case, why the hurried statement on April 28 — which, he concedes, was issued without sufficiently consulting the insurance companies that sell the policies — advising policyholders that in the event of a grid collapse they'd be on their own?
“We're being put in this situation because global reinsurers are interpreting it differently,” he says. They made it clear they wouldn't cover Sasria for payouts related to grid collapse, which they believe is a lot more likely than Sasria does.
“Eskom, since 2008, has been quite effective in implementing load-shedding, which, by its design, is meant to avert total grid failure. We don't think it's going to be any different from now on,” says Tyikwe.
So Sasria is “comfortable to take the risk” of committing to honour claims related to total grid collapse “until such time as we come back to the market and say, 'We have looked at the totality of the risk, these are the things we've managed to put in place,’ and we send out the endorsement again”.
“By the end of the month we'll have decided whether to reintroduce our April statement.” If so, the association will give four months' notice before implementing it, he says.
Should it return to that position and refuse to pay out claims related to total grid collapse, couldn't Sasria be accused of misleading advertising?
“No. First of all, we are not advertising.”
Except on its website it promises to provide “unique cover against civil commotion, public disorder and riots”, and “enable businesses to restore their liquidity or operations quickly and efficiently after experiencing loss or damage due to special risk events”.
Unless explicitly excluded, wouldn't policyholders with the load-shedding crisis top of mind understand “special risk events” to include total grid collapse?
“If there are protests related to load-shedding we will cover them. The area where we are struggling to quantify the risk and make sure we have the necessary reserves to pay for it is when there is a complete grid failure.”
The emphasis must be on “complete”, he says.
There is this outlier we are battling with in terms of covering because it will be total Armageddon, basically, if total grid collapse were to happen.
If in one part of the Cape Town metro there is a blackout and people protest and damage assets, Sasria will pay that claim. “But we
are saying there is this outlier we are battling with in terms of covering because it will be total Armageddon, basically, if total grid collapse were to happen.”
Why is it struggling to quantify the risks?
“Because Sasria claims are linked to human behaviour and we battle to understand human behaviour. We do not know how South Africans will behave after two or three days of blackout.”
July 2021 taught the association how hard it is to predict how people will react in certain situations, he says.
Of the claims made by businesses destroyed or damaged in those riots, 80% came from KwaZulu-Natal and 20% from Gauteng.
“In other parts of the country people came together and said, 'We're not going to join in a protest that's going to destroy our infrastructure'.”
But even in KwaZulu-Natal and Gauteng communities came together to protect certain shopping malls and areas.
“So it's not a foregone conclusion that if there's a total blackout South Africans will en masse go and destroy the infrastructure. Those are the challenges we're faced with. We monitor the protests going on in the country and they haven't translated into any significant damage.”
A complete grid collapse, however, would be another order of magnitude entirely, he says. “That's why we are battling with it, just like all the insurance companies in South Africa.”
Except they don't offer Sasria’s “unique cover” — a term that implies coverage for a worst-case scenario such as a grid collapse.
“Insurance brokers are trained enough to tell you what we are saying by that statement. Clients do not come to Sasria directly, they get proper advice before they take out a Sasria policy.”
They'll be told that “unique cover” for “special risk events” does not mean total grid collapse, he says. “We only started talking about total grid failure in the last six months.”
Surely this should have been flagged as a possibility by its risk assessors since at least 2008 when blackouts began?
“It's not something we thought we'd be worrying about in 2023,” he says.
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