South Africa is suffering from the worst loadshedding ever implemented. This is causing significant headaches for the insurance industry, particularly the short-term insurance companies. The energy crisis comes on the back of the major calamities of recent years, such as Covid-19, the July 2021 unrest, and the Durban floods of April 2022. As a result, there have been reports of global pressure from reinsurers that South Africa is becoming riskier to insure. This seems to have now triggered some short-term insurers to reconsider their position insofar as cover for electricity grid failure is concerned. Some short-term insurers have now made it clear that they will not provide cover for damages flowing from a grid failure. This approach is most likely to be adopted by most short-term insurers, given the fact that there is no end in sight with regard to the energy crisis – the powers that be do not seem to have a concrete solution to remedy and stabilise the situation. This piece briefly sheds light on some of the important considerations that the insureds will need to be on the lookout for as and when there are amendments to their policies.
Considerations for the insureds:
- Be on the lookout for correspondence advising of the changes. The insured must ensure that their contact details (with the insurer) are up to date, failing which the insured may be caught by surprise at the time of claiming.
- Where a broker is involved, it may be prudent to ensure that, you as the insured, verify whether there has been any communication from the insurer regarding changes to the policy.
- Some changes are effected at the time of the annual assessment – therefore, you as the insured, must be on the lookout whether the relevant provisions on the policy wording/schedule have been changed in any way, and whether there has been any change in the premiums. Where a broker is involved, there is a duty on the broker to explain to the insured if there are any changes to the policy.
- It will also be crucial to check whether such event is regarded as a special peril in the policy – in which case you, the insured, will need to decide whether you want to take out cover for such. Cover for special perils come at a price and, therefore, one will need to be cognisant of that fact. For some businesses, especially those handling combustible material, flammable liquids, heat generating objects and including farms, may need to seriously consider taking out such cover given their exposure to the risk.
- Where terms of the insurance policy have been changed without any notification to you as an insured, you are most likely to successfully challenge any repudiation that may result.
As stated above, there is a good chance that most insurance companies will adopt this approach in order to reduce their exposure to risk. It is therefore critical that the insureds are aware of the industry changes, so that they can take necessary decisions regarding their insurance policies, and to be covered for exactly what they want to be covered for. Relevant insurance intermediaries should also be on the specific lookout for such changes to their clients’ policies.