Several risks are playing out in South Africa that are keeping insurers awake at night. These themes are likely to impact the insured during 2023 and significantly affect those who do not have the right cover in place or none.
“We are seeing that the risk profile is changing rapidly for homeowners especially, given the severe and frequent increase in weather disasters, as well as impact from planned power cuts, which is seeing many resorting to alternative power supply in an effort to keep the lights on,” says Lizo Mnguni, spokesperson for Old Mutual Insure.
Load shedding
“While everyone has come to accept the instability of the national grid, reports are suggesting that load shedding is likely to be a guaranteed event for the next two years. In this scenario, we are in for a bumpy ride,” Mnguni said.
He said that with the unprecedented level of load shedding implemented over the past 12 months, Old Mutual Insure has noticed a significant increase in claims, particularly for power surges, with frequencies for claims impacted by load shedding having almost doubled. Since 2018 the number of claims for electronic equipment, burst geysers and power surges has risen by 93% at the company.
“Power surge claims are increasingly becoming difficult to insure. Insurance companies are in the business of managing risk, and when the frequency and severity of claims increase, it can impact the availability and affordability of insurance coverage.”
He said policyholders are encouraged to take the steps necessary to protect electrical equipment from power surges, with, for example, the installation of power surge protectors.
Policyholders should also take other preventative measures, such as turning off electronics during load shedding, unplugging non-essential devices during storms, and keeping electronics away from sources of heat and moisture.
By taking proactive measures to protect their electrical equipment, policyholders can not only reduce their risk of damage from power surges but also help to maintain the availability and affordability of insurance coverage.
He said many people are investing in alternative power supplies such as inverters, generators, UPS batteries, and solar power. The latter is likely to become popular as the government has recently introduced a tax break on solar panels for individuals.
“Make sure you have the right cover in place for the right back-up system you get, which may either be buildings or contents cover otherwise you may be at risk for not being covered for a loss event,” Mnguni said.
He said that if you are going to the expense of installing an alternate power supply, don’t cut corners. “Ensure you have the proper warranties in place and use a certified installer.”
Climate change and weather
“We are facing significant weather risks in 2023, which makes it even more important to either keep your insurance cover in place or ensure you have adequate insurance, so that you are in a position to repair property that is lost or damaged,” Mnguni said.
He said we are currently in a prolonged La Niña cycle, which is wreaking havoc on the country.
“We have seen the effects of the Johannesburg floods in late 2022, brought on by La Niña, and of course, the biggest catastrophic event of 2022 – and in history – the KwaZulu-Natal floods.”
Old Mutual Insure’s data and research reveals that average annual catastrophe claims between 2012 and 2022 are 10 times higher than they were between 2000 and 2011.
“This is also changing the risk profile for policyholders, as well as geographic locations. For example, previously, if you lived in KZN the likelihood of mudslides may have been remote, but now, with weather changing so rapidly, the risk of a mudslide may have increased dramatically compared to what it was 20 years ago. Your policy may not have covered it before, but now it may be essential,” Mnguni said.
He said policyholders may have previously thought that they didn’t need specific insurance because the infrastructure surrounding their property was good, with minimal risks, but this is also changing.
“You are generally covered for it under the buildings cover, but we are seeing some insurers excluding flood risk from policies in areas where there are regular floods. In this scenario, make sure you review your policy and that you still have cover for these events,” said Mnguni, adding that there is clear urgency for consumers who thought that they would never need insurance to now start thinking about it.
Economic climate
Mnguni predicts that inflation will be around until the early part of 2023 before tapering off in the second half of next year. “With the inflation situation, it is even more important to be insured in 2023.”
Old Mutual Insure data suggests that used car prices have risen by between 8% and 14% in the past two years, but the average cost per claim has also increased significantly. The company’s claims inflation has been on an upward trend since 2021, and this continued in 2022.
Civil unrest
“There is a greater risk of civil unrest in 2023 as opposed to 2022, especially around the instability of the grid. We are keeping our eye on this,” said Mnguni, recalling the unprecedented riots of 2021.
He reminds policyholders that if they experience damage to their properties because of civil unrest, it would be covered by the South African Special Risks Insurance Association (Sasria).
“Most people have this cover simply by having an insurance policy. So, if you have buildings or contents insurance, as well as motor insurance, you will almost always have Sasria cover in place.”
