The insured loss ‘gold’ that SA can ill afford
There are wins that you wish for and celebrate, such as South Africa winning the 1995, 2007 and 2019 Ruby World Cup, with the Springboks triumphantly lifting the Webb Ellis Trophy on those three occasions. Then there are wins you can only dream about, that somehow remain just out of reach no matter how hard you try. Just ask the Proteas about their track record in the ICC Cricket World Cup; they have failed at every opportunity since their inaugural appearance in the competition, way back in 1992.
Stomach churning, chart-topping moments
Finally, there are wins that you would not wish on your worst enemy. Unfortunately these wins, which we describe as ‘best worsts’, are the type of win that South Africa Inc excels at. Our country has the uncanny ability to top the bottom of such lists, or at least feature in the top (sic) quartile. Need proof? The WEF Global Competitiveness Survey is full of examples, with the country hovering near to ‘best worst’ position on a number of socioeconomic measures; but you might prefer an example from the world of short-term insurance, being that this newsletter is aimed at financial advice processionals and employees in the broader financial services sector.
You see, last year South Africa really excelled on the global ranking of countries that smash their own stuff, whether measured by insured or total losses. PS: The writer is not sure there is such a ranking, and is very sure that there would be no medals for securing first, second or third place on it; but we are confident that South Africa would be a top contender if there was. Reason: we are old hands at violent, hands-on protest. In fact, Municipal IQ, which tracks riots triggered by poor government services, joblessness and poverty, recorded on average 164 such protests each year between 2010 and 2019.
Lockdown disrupted looters too, briefly
Our hard-working protestors took a bit of a breather in 2020 and 2021 as they got to grips with the country’s tight national lockdown regulations. So, while lockdowns had a negative impact on our freedom of movement, they also had the positive outcome of reducing the everyday damage to infrastructure that accompanies protest action. Alas, the decline in number of protests was undone by the mother of all smash fests that played out over eight or so days in July 2021. Thousands of hooligans embarked on a looting and rioting spree that left businesses in areas of KwaZulu-Natal and Gauteng all but ruined. You will, no doubt, have watched some of the appalling video footage that circulated during this period.
By the time the fires were extinguished, order restored and the damages claims tallied up, South Africa Inc was staring at a staggering total loss of around R50 billion, with only R32 billion covered by the country’s insurance industry. That is a total economic loss of approximately US$3.45 billion and an insured loss of US$2.2 billion, at the then R14.50 per dollar exchange rate. The entire insured loss fell upon the country’s special risks insurer, Sasria SOC Limited, who undertook to pay all valid claims with assistance from its only shareholder, the South African government. National Treasury has since chipped in R14.9 billion to assist with claims pay-outs and prop up the insurer’s balance sheet. You and I, meanwhile, will pay for the mess through higher taxes and dearer riot insurance cover for the next decade or so.
Race to the bottom
Now, the question becomes: How did South Africa fare in the global riot and civil disorder pecking chain last year? Back in September 2021, Sasria MD Cedric Masondo told Parliament that claims would amount to R20-R25 billion. Masondo’s initial guestimate was enough for Fin24.com to proclaim: ‘SA unrest was the world’s most expensive blitz riot in a decade’. Could this be true? And did South Africa really win another gold medal for its citizens to fawn over? We found some answers in a WEF article titled ‘Where protests and insurance impacts intersect’. The article noted that the increase in the size and frequency of insurance industry losses from riot and civil disorder was alarming.
Even so, it turns out that Fin24 was over-promising insofar South Africa’s rioting prowess. “In 2020, the George Floyd protests became the first civil disorder catastrophe event to exceed US$1 billion in losses to the insurance industry,” writes the WEF, with a third of these losses coming from only three retailers. They reported that the 2020 protests that shook much of America following the George Floyd murder stood “head and shoulders above any riot and civil disorder catastrophe dating between 1950 and 2020”.
Chile and the US make smash the competition
The PCS team at data analytics company Verisk listed 12 similar events over the period, with the most significant being the 1992 riot in Los Angeles at US$800 million in insured losses, not adjusting for inflation. “The average loss to the US insurance industry from riot and civil disorder catastrophes over those 70 years was only around US$90 million,” writes the WEF. That means that South Africa’s July 2021 catastrophe weighs in at 24 times the US average insured losses.
At US$2.2 billion, it was tempting to award South Africa a gold medal in the category ‘Biggest insured losses following riot and civil disorder over the past decade’. Alas, the Chileans, another bastion of orderly society, managed to break US$3 billion in damages to insured goods in the final quarter of 2019. And since neither the Chilean or US losses were not entirely accounted for, we have to concede that our best efforts in 2021 only earned South Africa the ‘bronze for bashing’ medal over the past decade. The good news is we clearly scooped the gold medal in the Civil Commotion for 2021 category. For a bit more context, we thought to share a few of the larger catastrophe losses reported around the globe last year.
Manmade catastrophe… SA has it covered!
Reinsurer Swiss Re said that global insured catastrophe losses totalled US$112 billion in 2021, the fourth highest on record. Natural catastrophes accounted for the largest portion of these losses with the two costliest natural disasters of the year being Hurricane Ida at an estimated US$32 billion and winter storm Uri at US$15 billion in insured losses, both in the US. In South Africa, we have to go back to 2017 to find a natural catastrophe that even made it into the global reports, with the R4 billion or so in total losses suffered due to the Knysna fires. Insured losses following the June catastrophe came in at around R1.9 billion, or US$147 million at the time.
“Manmade disasters triggered another US$7 billion of insured losses during 2021,” wrote Swiss Re. And what that means is that a few thousand South Africans caused insured damages equal to 30% of the world’s global manmade catastrophe losses last year! Makes you think, doesn’t it?
Writer’s thoughts:
The July 2021 riots are not a joking matter. Aside from the billions of rand in damages, there were more than 300 lives lost and 150000 jobs put at risk. Although South Africa’s special risks insurer deservers applause for stepping in, as does government for fulfilling its role as shareholder of last resort, we must ask: For how much longer can South Africa allow a relatively small criminal element run roughshod over the economy? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
