Insuring resilience

12 October 2021 12:15 by John de Villiers

Building resilience to future exposure of business interruption triggers and extreme events includes protecting the most vulnerable and largely excluded small and medium business enterprises with accessible insurance.

The 10th Allianz Risk Barometer 2021[1], sees a trio of Covid-19 related risks heading up the top ten risks faced by business in South Africa according to CEOs, risk managers, brokers and insurance experts. Of these the first three – Cyber incidents, Business interruption and Pandemic outbreak, are closely interlinked with the Pandemic, as has been the fifth, Political risks and violence.

  1. Cyber incidents (e.g., cyber crime, IT failure/outage, data breaches, fines, and penalties) 48%.
  2. Business interruption (incl. supply chain disruption) 39%
  3. Pandemic outbreak (e.g., health and workforce issues, restrictions on movement) 29%
  4. Changes in legislation and regulation (e.g., trade wars and tariffs, economic sanctions, protectionism, Brexit, Euro-zone disintegration) 24%
  5. Political risks and violence (e.g., political instability, war, terrorism, civil commotion, riots and looting)
  6. Critical infrastructure blackouts (e.g., disruption of power) 18%
  7. Climate change/increasing volatility of weather 14%
  8. New technologies (e.g., impact of artificial intelligence, autonomous vehicles, 3D printing, Internet of Things, nanotechnology, blockchain) 13%
  9. Natural catastrophes (e.g., storm, flood, earthquake, wildfire) and
  10. Shortage of skilled workforce, both 12%[2]

In a recent SASRIA Quarterly report to Parliament on the challenges in executing their mandate, and the impact of COVID-19 and recent civil unrest on their program,[3] Mr Cedric Masondo, Managing Director of SASRIA said that – “SASRIA had prepared itself for the probability of social unrest, but the extent of the July unrest had overwhelmed the organisation”.

However, “Claims below R1 million were being settled by SASRIA’s peer insurance companies. This peer assistance had relieved SASRIA and enabled it to focus on big claims. It had set a six- to 24-month target to settle all claims and rebuild all projects.”

“Money received from the reinsurers had helped SASRIA with its cash flow. Its financial sustainability plan aimed to register and settle all claims according to its targets, to ensure full recovery from reinsurers, to acquire a capital injection from the National Treasury (recapitalisation - SASRIA had a balance sheet of R9 billion and was facing R20 to R25 billion in claims), to explore a new growth plan which would focus on uninsured small, medium and micro enterprises (SMMEs), and to explore the natural disaster pool in the long term.”

Mr Moss Ngoasheng, Chairperson and independent Non-Executive Director: SASRIA said that: “The issue of the uninsured was not a new phenomenon. A lot of South Africans, particularly black South Africans, were not insured. The majority of SMMEs -- for example, the “Mama-Hlangu who was selling vetkoeks at the corner of a street" -- were not insured”. They were going to have to start building models which made it a requirement to insure anyone who was involved in an economic activity, and who may be vulnerable to social unrest. This would require a significant change in SASRIA’s mandate and its capitalisation. It could not “write business” in the manner it would like unless it received strong support from its shareholder, with its balance sheet geared towards achieving that responsibility.”

Therefore, even though, “The SMMEs could afford to purchase SASRIA cover. The issue was not with the product, but more about accessibility. Most people did not buy insurance at all. If one did not have insurance, it was very difficult to add SASRIA.”

The magnitude, extent of destruction, and nature of the civil unrest in Kwa-Zulu Natal and Gauteng were unprecedented and an extreme event, but it did not occur in isolation. According to The Institute for Security Studies Protest and Public Violence Monitor, lockdown has seen a socio-political environment of steadily rising disruptive or violent civil protests.[4] Moves by SASRIA to start building models which make it a requirement to insure anyone who is involved in an economic activity, and who are the most vulnerable to social unrest are therefore welcome in protecting otherwise excluded small and medium businesses.

Progress update on the settlement of claims – 4 October 2021

Taking into account the mammoth task currently underway, Sasria remains committed to honouring all eligible claims; and have implemented the following plans to expedite claims payments:

  1. Almost 100% of claims notifications have been received and they are in the process of loss adjustment;
  2. To date, claims amounting to over R5.8 billion have been paid;
  3. All claims below R1 million to be settled and paid in full quicker, and the Agent companies are working extremely hard to make sure that these claims are paid as quickly as possible;
  4. Sasria is determined to settle 80% of all claims between R1 million and R30 million by the end of October 2021;
  5. asria has started paying interim payments as proposed by Loss Adjusters on all big claims (above R30 million), and are determined to make sure that at least 30% of total claim value for big claims is paid in the next couple of weeks;
  6. We would like to assure clients that we have added resources to reduce any possible delays in the processing of claim payments;
  7. We are confident that in two weeks, we would have attended to all outstanding reports and made necessary payments; and
  8. Sasria has engaged with industry partners and reached an agreement that the damaged properties will rather be rebuilt, than do cash in lieu payments. Collaborative work with loss adjusters and the industry will be done to ensure that the buildings are rebuilt.

National Treasury Media Statement

[2] Allianz-Risk-Barometer-2021-Appendix.pdf at page 26.
[3]Parliamentary Monitoring Group