Possible Electrical Grid Failure For SA – What Does This Mean From An Insurance Standpoint?
Oswald Kuyler, Head of Short-term Insurance at Consult by Momentum
It is important to understand the difference between loadshedding & electrical grid failure.
Loadshedding, as we understand it today, is controlled interruption of electricity supply to the public. These scheduled interruptions do not affect any municipal institution; however, electrical grid failure will affect municipalities as well as any public infrastructure.
The thought of having a complete blackout for an indefinite period of time does not only bring consumers to the edge of their seats, but also demands attention from insurers, who are predicting an increase in losses should grid failure become a reality. A few insurers have reacted to the risk of grid failure, with notices to clients of imminent policy terms & conditions tightening in an effort to mitigate their exposure and align to their reinsurance treaty requirements.
Reinsurers support or provide cover to insurers especially in the event of a catastrophe. For the reinsurance policy to perform, the insurer has no choice but to comply with the requirements of the agreement. This is similar to a general policy condition that a client needs to adhere to for the insurer to honour their claim.
How will this play out for South Africans? From a personal and commercial policy perspective, I think it’s clear that insurers have learned from the business interruption claims of the past and have improved on their ability to preempt exposure and therefore implement proactive risk mitigating measures. Initial commentary from the insurers have been somewhat ambiguous in terms of what is covered and what is not; what seems to be clear is that there is a definitive push to avoid any losses associated with grid failure.
Herein lies endless questions around consequential loss and whether it can directly be associated to a particular claim. We’ve also seen some insurers saying that if the grid failure results in any other public supply being affected (e.g. water), then any consequential loss might also not be covered. It begs the question, what exactly will be covered?
The breadth of exclusions of cover remains significant based on the initial reaction from insurers. However, there have been some alternative views coming through that should the grid failure not be material to the loss, then the client will continue to enjoy cover. This sparks questions around security requirements at your property if you’re to maintain your cover.
Should your alarm not be in working order during grid failure and theft occurs, will you still be covered? Possibly not, and so it’s therefore important to be clear on the policy conditions and decide whether it makes sense for you to remove your alarm as a condition of your cover and pay a higher theft premium (that is if the insurer does not exclude theft in totality during grid failure).
It’s unfortunate but it’s also clear that just as with claims resulting from loadshedding, insurers will not cover any business interruption claim caused by grid failure. Therefore, should a defined event take place at your premises due to grid failure (fire, stock deterioration that has caused financial loss to the business), there will be no cover.
The best approach would be to invest into alternative energy solutions that can power your alarm systems, outdoor lights and electric fences. From a business perspective, ensure that you regularly back up data via Cloud solutions, consider the amount of stock you hold at a time and possibly evaluate your business model for opportunities to be less energy dependent.
I believe each insurer will ultimately react in their own way within the ambit of their own risk appetite and reinsurance agreement. It’s therefore of utmost importance that South Africans engage with a qualified short-term insurance adviser who could interpret an insurer’s policy wording and advise consumers accordingly.
At Consult by Momentum, we make it our business to understand and navigate through complexities in asset protection. We have therefore engaged with all our partners to obtain clarity around these topics which will enable our financial advisers to guide our clients during this period.