Insurers prepare for a total blackout in South Africa

South African short-term insurers “anticipate that we are going to have a grid failure” and are thus changing some of their policies and increasing premiums to protect their businesses.

This is according to Relebogile Mashego, the assistant ombudsman for short-term insurance, who spoke to The Money Show about how the industry prepares for a blackout.

Mashego said that short-term insurers are already struggling with the increased number of claims stemming from load-shedding.

A total blackout is unlikely, but it will be a “high-impact incident”. Thus, insurers have to prepare for it.

Such a scenario is not a normal risk for insurers but a high-risk one as it will impact the viability of their businesses.

In a normal case, short-term insurers will cover incidents such as car accidents or fires. These events are isolated, and thus, it is unlikely that a significant number of clients will claim for such an incident simultaneously.

A total blackout, however, will impact everyone. Many clients – potentially everyone – will claim damages or losses simultaneously.

Insurers cannot cover such a high volume of payouts within a short time. Thus, such an event threatens the ongoing viability of their businesses.

South African insurers notably came under immense pressure during the July Riots of 2021 and the floods in Durban in 2022, which were unforeseen events impacting many clients.

Usually, in these cases, the state-funded South African Special Risk Insurance Association (Sasria) steps in to bolster private insurers and pay claims.

However, it has recently said it will not cover blackout losses. It then changed its tune to say that it would, in fact, cover losses from grid failure.

This uncertainty has led to many insurers planning for the eventuality that Sasria either does not step in, is unable to step in, or can only cover a portion of losses.

And so, insurers have taken measures to protect their businesses from the potential catastrophic losses of a total blackout. Such measures include reviewing existing policies and increasing premiums.

Mashego said it is “unfortunate that the steps taken have included the exclusion of coverage of a grid failure in some of their policies”.

Insurers are required to notify policyholders of such changes.

Mashego clarified that this is not a blanket exclusion, and it will be different from insurer to insurer and policy to policy.

Unfortunately, insurers cannot provide blackout coverage to everyone, as it threatens the sustainability of insurance companies.

Local insurers changing policies

Numerous South African insurance providers are now excluding damages related to a blackout in South Africa.

GIB sales operation consultant Guy Jameson says insurance companies have no choice but to view a total grid failure as an uninsurable risk.

“This decision has arisen as reinsurers have indicated they would not provide coverage in the event of a total grid failure,” Jameson said.

“This effectively leaves insurance companies with no option but to consider grid failure an uninsurable risk.”

In March, Outsurance added grid collapse exclusions to their policies, removing cover for any loss, damage or liability caused by an Eskom blackout.

It has joined the likes of Hollard, Momentum Insure, Naked Insurance, and Santam, which also excluded covering a grid collapse.

Outsurance attributed the change to a need to review its cover in light of the higher risk of a blackout.

“The increased levels of load shedding over the last year, with the possibility of an electricity grid failure, has required a review of our cover,” it said in a notice sent to its customers.

Like Outsurace, Hollard spokesperson Warwick Bloom said that while the potential for a total grid failure remains remote, it is now a “possibility”.