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South Africa Businesses Face Triple Threat: Riots, Blackouts & Extreme Weather

Published by
WIlliam Dube

Johannesburg – South African businesses are grappling with rapidly evolving risks, as the threat of riots, blackouts, and extreme weather conditions keep insurers on high alert, according to Lizo Mnguni, spokesperson for Old Mutual Insure.

Key Takeaways

  • South African businesses face increasing risks in 2023, including load shedding and power outages, which have led to a 93% rise in related claims since 2018.
  • The ongoing La Niña cycle and climate change have heightened weather risks, resulting in a tenfold increase in catastrophe claims between 2012 and 2022 compared to 2000-2011.
  • The potential for civil unrest in 2023 is greater than in 2022, with concerns surrounding the unstable national grid, making it crucial for businesses to secure proper insurance coverage.

These emerging risks are expected to substantially impact insured businesses during 2023 and have even more severe consequences for those without any form of insurance coverage. Mnguni has identified several key factors contributing to the heightened insurance risks for businesses in the upcoming year:

Load shedding and power outages

Although the instability of the national grid has become an accepted reality, recent reports suggest that load shedding is likely to be a constant concern for at least the next two years. Mnguni warns that this situation will make for a challenging journey for businesses.

Old Mutual Insure has observed a substantial increase in claims related to power surges and outages. Mnguni reveals that the number of claims for electronic equipment, burst geysers, and power surges has risen by a staggering 93% since 2018.

As power surge claims become increasingly difficult to insure, insurance companies face challenges in managing risk. The frequency and severity of claims can impact the availability and affordability of insurance coverage. Consequently, policyholders are now being urged to take preventative measures to safeguard their equipment.

By proactively protecting their electrical equipment, policyholders can minimize damage caused by power surges and contribute to maintaining the availability and affordability of insurance coverage.

Climate change and extreme weather events

Mnguni emphasizes the growing importance of insurance coverage in the face of escalating weather risks. South Africa is currently experiencing an extended La Niña cycle, causing widespread devastation across the country.

The consequences of this climate phenomenon were made evident by the Johannesburg floods in late 2022 and the historically catastrophic KwaZulu-Natal floods in the same year. Recent data from Old Mutual Insure highlights that the average annual catastrophe (CAT) claims between 2012 and 2022 are ten times higher than those between 2000 and 2011.

Mnguni points out that policyholders may have previously believed that robust infrastructure and minimal risks surrounding their property rendered specific insurance coverage unnecessary, but this notion is rapidly changing.

Economic climate and inflation

Mnguni expects elevated inflation levels to persist until early 2023 before gradually diminishing in the latter half of the year, making it crucial for businesses in South Africa to secure insurance coverage. Old Mutual Insure data reveals that used car prices have increased by 8% to 14% over the past two years, while the average cost per claim has also seen a significant uptick.

The firm’s data indicates that claims inflation has been on an upward trajectory since 2021, a trend that continued into 2022.

Civil unrest and social instability

Mnguni anticipates a heightened risk of civil unrest in 2023 compared to 2022, particularly in relation to the unstable national grid. In light of the unprecedented riots of 2021, Old Mutual Insure is closely monitoring this situation.

Mnguni reassures policyholders that should they suffer property damage due to civil unrest, coverage will be provided under SASRIA. He explains that most people automatically have this coverage by virtue of holding an insurance policy. Therefore, if a policyholder has buildings or contents insurance, as well as motor insurance, they will almost always have SASRIA coverage in place.

WIlliam Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on william@rateweb.co.za

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Published by
WIlliam Dube

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