Old Mutual warning for homeowners

South African homeowners are increasingly being left to deal with the consequences of deteriorating public infrastructure, posing significant risks that insurance may not always cover. 

This is feedback from Molebatsi Langa, the head of retail strategic accounts at Old Mutual Insure, who said 2025 is set to be defined by rising risks due to infrastructure collapse. 

“These challenges are not unique to South Africa, but as risks grow more interconnected, businesses and individuals must adopt proactive strategies to mitigate disruptions and safeguard their assets,” Langa said. 

What is unique to South Africa is that these risks are exacerbated by deteriorating infrastructure, particularly water shortages and period electricity outages. 

In particular, South Africa’s economic hub of Gauteng has been hard hit by deteriorating infrastructure, which poses significant insurance risks for businesses and consumers alike. 

Johannesburg’s ongoing water crisis, with supply cuts lasting up to 86 hours, has already disrupted daily life and business operations.

After a significant reduction in load-shedding, the province now faces a water shortage crisis that could have far-reaching consequences. 

It also presents new risks. For example, low water pressure severely impacts fire-fighting efforts, as fire engines need a reliable water source to extinguish fires.

In response to the growing concerns about water shortages, Langa provides the following tips for homeowners –

• When purchasing a property, it’s important to check for adequate water points or hydrants in case of a fire.
• Don’t solely rely on municipal water sources; explore alternatives, such as groundwater or rainwater harvesting systems, to ensure more reliable access.
• Consider investing in flood-proofing measures for your property, like raising platforms at key points and creating water channels to direct water away from your property.

Langa also urged homeowners to check with their insurers about what is covered by their policies and what can be done to mitigate risk further. 

Extreme weather events warning

Another major risk homeowners face is the rise in extreme weather events that threaten to make some parts of the country uninsurable. 

“Climate change is a global risk, but in South Africa, local context, it becomes magnified, through, for example, inadequate infrastructure and regional changing weather patterns,” Langa said. 

These challenges make South Africa particularly vulnerable to climate-related disasters, and property owners have a key role in ensuring that their properties are disaster-ready.

According to insurance giant Allianz, extreme weather events are ranked as the second most severe risk in the outlook for the next two years, with the risk rising to first place over the next decade.

This highlights the urgent need for proactive measures, both on a national scale and within communities, to address the growing threats posed by climate change.

These risks have been exacerbated by the government’s planned VAT increase to be spread over the next two years. 

Old Mutual Insure managing director Charles Nortje explained that even a small VAT hike of 0.5 percentage points could significantly impact short-term insurance. 

As short-term insurance is subject to VAT, an increase would impact all insurance policyholders, Nortje explained. 

If a policyholder spends R100 on insurance and the VAT portion increases from R15 to R15.50 this year and R16 next year, something has to give. 

Customers may need to choose between reducing cover, increasing excesses or looking for “no frills” alternatives.

This poses a significant challenge for the industry, as most insurers are grappling with stagnation.

In addition, a VAT change is operationally challenging as it increases the cost of compliance.

It doesn’t add any revenue to insurers, who are burdened with the responsibility of collecting the tax and the complexity of implementing changes to their internal systems. 

The VAT changes will necessitate additional communication to insurance buyers over the next two years, notifying them of the price increase and that the sums insured need to be adjusted.

At the same time, the insurance industry is struggling to manage increases in the average cost of claims due to climate change impacts, growing risk concentrations, and steep inflation on motor repair and building costs. 

Significant premium increases have been seen over the past two years, and while this trend appears to be tapering off, a VAT increase will trigger a fresh round of reviews of insurance policy terms.