The massive impact of claims for business interruption resulting from a reportable contagious disease last year, followed by the civil unrest recently, is a sober reminder of our duty to ensure that clients are covered against any and all possible losses.
The cost of civil unrest
Some put the insured losses, being damages for which individuals and businesses have insurance cover, at around R15 billion, but the overall cost to the South African economy is multiples of this number.
Hennie Nortje, Executive for claims, Centre of Excellence at Old Mutual Insure says: “The economic disruption caused by the unrest and the resulting down-time as critical business infrastructure is rebuilt, could wipe more than R50 billion rand from the country’s 2021 GDP.”
SASRIA cover against business interruption losses
SASRIA cover is ‘sold’ as an optional add-on to an existing commercial or personal insurance policy. The cover is cheap relative to the premium on the main contract, so many insureds take it. “It is very important that consumers and businesses insist on SASRIA cover precisely because of what recent events have proved. While no one may have seen an event of such a magnitude coming, the point of insurance is to protect one against risk.”
For businesses, SASRIA cover is proving pivotal to ensure they have funds available to pay expenses when the business is not able to trade after a loss.
The nuts and bolts of SASRIA
Nortje explains that SASRIA cover for Business Interruption is available for Standing Charges, Working Expenses, Net Profit or Gross Profit.
“It is important to note that you don’t have to have Business Interruption insurance on your normal policy to qualify for SASRIA Business Interruption, you only need to have cover on a SASRIA property damage coupon to qualify,” says Nortje.
Perils covered by the SASRIA policy
SASRIA will cover loss of, or damage to the property insured directly related to or caused by:
- any act (whether on behalf of any organization, body or person, or group of persons) calculated or directed to overthrow or influence any State or government, or any provincial, local or tribal authority with force, or by means of fear, terrorism or violence;
- any act which is calculated or directed to bring about loss or damage in order to further any political aim, objective or cause, or to bring about any social or economic change, or in protest against any State or government, or any provincial, local or tribal authority, or for the purpose of inspiring fear in the public, or any section thereof;
- any riot, strike or public disorder, or any act or activity which is calculated or directed to bring about a riot, strike or public disorder;
- any attempt to perform any act referred to in clause (1), (2) or (3) above;
- the act of any lawfully established authority in controlling, preventing, suppressing or in any other way dealing with any occurrence referred to in clause (1), (2), (3) or (4) above.
Will SASRIA be able to fulfil its obligations?
“All insurers, and SASRIA is no exception, take out additional insurance for unexpected catastrophe events, where losses are likely to exceed their ability to pay from own reserves,” says Nortje. This means you cannot simply look at SASRIA’s balance sheet as an indication of the total cash it has available to honour claims. In practice, the special risks insurer will carry the cost of combined claims up to a certain pre-agreed limit, from which point its reinsurance partners will step in.
The hidden cost of damages caused by civil commotion
“Aside from the huge impact on our economy, the unrest may lead to job losses and create an additional hurdle for foreign investors who might have been considering investing in the country,” says Nortje. The disruption to logistics and manufacturing sectors would result in consumers paying higher prices for certain goods, while insurance premiums to cover future loss events would inevitably rise.
Claims progress
South Africa’s traditional insurers operate as agents for SASRIA and are working feverishly to assist affected businesses and individuals to lodge their claims. Insurers have a mandate from SASRIA to fast-track claims within certain loss limits.
Old Mutual Insure has also joined other leading local brands in offering non-insurance support to affected businesses. The insurer pledged R10 million to help to rebuild small and medium enterprises, many of which do not have the benefit of insurance cover.
Government response
Legalbrief Today reports that employers whose premises were closed during the unrest but were not registered with the UIF at the time may apply for income replacement on behalf of their staff – but only if they register beforehand. This appears to be the gist of a recent Department of Employment & Labour media statement on the temporary relief scheme, which was gazetted last week. It also confirms that the scheme is confined to employees whose places of work were closed during the unrest because they were destroyed, damaged or looted.
