The Sunday Times’s business section has published an article based on an interview with the chief executive of the South African Special Risk Insurance Association (Sasria) that addressed the possibility that Sasria may withdraw cover for claims stemming from a failure of the electricity grid. On 28 April, Sasria announced that, from 1 June, its policies would exclude claims arising from a grid collapse. It retracted the circulars on 5 May.
However, the retraction may be only temporary. “The insurance industry said it hadn’t been properly consulted and had questions around certainty of contract,” Business Times quoted CE Mpumi Tyikwe as saying. “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.”
According to Business Times, Tyikwe conceded that the April announcement was made without sufficiently consulting the insurance companies that sell Sasria’s policies. Asked whether Sasria would pay claims arising from a grid collapse while it was plotting “a way forward”, Tyikwe replied: “We’ll pay those claims.” Sasria was “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, Sasria will provide four months’ notice before implementing it, he said. “If there are protests related to loadshedding, 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,” Tyikwe was quoted as saying. If there is a blackout in one part of a metro and people protest and damage assets, Sasria will pay the claims. “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.”
Global reinsurers’ perspective
Sasria has reserves of R10 billion, which was more than it had before the riots in July 2021, he said. The state-owned insurer paid out R32bn for damage caused by the riots, and National Treasury had to inject R22bn to help it cover the claims. Tyikwe said Sasria would require a similar injection if it had claims of R32bn or more today. Asked whether Sasria has any guarantees this would be forthcoming, he replied: “I am engaging the shareholder at the moment.” Sasria did not believe a grid collapse was imminent. But global reinsurers believe a grid collapse is a lot more likely and made it clear they would not cover Sasria for pay-outs related to such an event, he said. Asked why Sasria was struggling to quantify the risks associated with a grid collapse, Tyikwe said claims were linked to human behaviour, and Sasria did not know how South Africans will behave after two or three days of a blackout. It was not a foregone conclusion that South Africans will destroy infrastructure en masse if there is a total blackout, he said. The July 2021 riots had been confined to KwaZulu-Natal and Gauteng, and in these provinces, communities had come together to protect shopping malls and residential areas.
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