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14.9 billion reasons to pay riot claims

18 November 2021 Gareth Stokes

Any doubts over South Africa’s special risk insurer’s capacity to pay mounting civil commotion claims have been dispelled, thanks to an R11 billion lifeline announced by the Minister of Finance during the 2021 Medium Term Budget Policy Statement (MTBPS). This funding is in addition to the R3.9 billion announced by National Treasury earlier in the year.

In a matter-of-fact one-liner, Minister Enoch Godongwana undertook to make the additional funding available to Sasria SOC Limited “to enable them to continue settling legitimate claims from businesses damaged during the [July 2021] unrest”. The industry can thank its stars that South Africa’s tax revenue collections have come in ahead of expectation for the 2021/22 year, giving government some wriggle room insofar meeting the unexpected civil commotion costs. 

Just imagine what R14.9 billion could have bought…

The Minister soundly condemned the widespread civil commotion that laid waste to business assets in areas of Gauteng and KwaZulu-Natal recently. “The criminal activity we witnessed during the recent unrest reminds us that crime continues to be a blight on our society; it undermines confidence in our recovery and hinders our long-term economic development,” he said. 

You need only trawl the JSE SENS announcements for the impact of civil commotion on individual listed firms. Massmart, for example, recently said that the loss event would cost it R650 million, being the portion of the estimated R2.5 billion in total losses suffered that it could not claim from insurers. The owner of Game, Makro and Builders Warehouse lost around R1.3 billion in inventory alone! Forget physical damage though… Another retailer, Pick ‘n Pay, estimated that the July 2021 disruptions resulted in a R930 million fall in revenue due to event-related closures of its Pick ‘n Pay Liquor outlets. Incidentally, the largest claims received by Sasria total R1.5 billion. 

There have been various estimates for the total property damage following the civil commotion, ranging from an initial R10-R15 billion all the way to R50 billion. This speculation has been cleared up thanks to a 16 November update session held by Sasria for the country’s financial journalists. Sasria MD, Cedric Masondo, confirmed that the insurer had received 14051 claims totalling R32 billion. These claims are thought to be a fair representation of the insurer’s total liability following the event. It emerged during the presentation that the total damage may even exceed R50 billion, with another R10 billion from the insurance industry for covers in excess of Sasria coupons and around R10 billion for uninsured damage. 

FAnews asked Mr Masondo to give a breakdown of how Sasria would settle its R32 billion share. He noted that in July of this year, Sasria had assets of around R10 billion on balance sheet. This amount combined with the R14.9 billion from government; the R6.5 billion received from reinsurers to date; and approximately R3.5 billion in annual premiums would be adequate to meet the insurer’s liabilities. Masondo noted that some of government’s funding would be diverted to meet statutory capital requirements and that there would be additional recoveries from reinsurers “for their part of claims on the R1 billion coupons”. 

There was no avoiding pay-out delays

The on-the-ground experience of the Sasria claims pay-out process has not been without challenges. One of the most common complaints following the July 2021 catastrophe has been that the pay-out process is taking too long, with the result being that businesses are struggling to stay afloat. Sasria admitted that there had been delays. “There has been commendable progress [in finalising claims]; but we acknowledge challenges related to our capacity in the market, including the lack of internal capacity to manage large losses; overstretched Loss Adjusters; clients having difficulties in the formulation of claims; and issues around policy interpretation,” they said. Despite these challenges, R12.6 billion had been paid out by Monday, 15 November, with a target of settling 80% of claims up to R60 million in value by March next year. 

One has to feel sympathy for Sasria, which had to figure out how to deal with more than double its worst ever full-year case load in just a few weeks, notwithstanding the complications presented by many claims being well over the R20 million threshold. Although only a handful of claims have been rejected, we expect many examples of inadequate sums insured for assets such as buildings and inventories to emerge in coming months. It is likely some of these hiccups, whether due to errors of commission or omission, will end up in the courts and Ombud structures for finalisation. 

Rebuilding after disaster…

The South African Insurance Association (SAIA) has welcomed the additional funding announcement. “SAIA and its member companies from the non-life insurance industry continue to work very closely with Sasria,” they wrote. “SAIA members, operating in terms of mandates authorised by Sasria, are helping with assessment of claims and settling claims up to predetermined limits”. The association said that insurers have emerged in good shape following the triple-impact of the Covid-19 pandemic, the subsequent economic dislocation and the July political unrest. “We believes that the non-life insurance industry, including Sasria as one of its members, remains in a sound position and well able to pay claims,” they said. 

But it will take up to 18-months for Sasria to finalise all claims, given that it will BREAK opt for buildings reinstatement in many cases… And it could take even longer for the insurer to recapitalise following the shock. Sasria faces a long road to recovery and will now work with National Treasury and its reinsurers to ensure that it meets its ongoing solvency capital requirements. The business will also, no doubt, be passing premium increase to insureds following tough renegotiations with its reinsurers. There is, after all, nothing like a R32 billion loss to focus reinsurers’ attention! 

We leave it to the special risks insurer to conclude, in Masondo’s voice: “Sasria continues to play a key role in the insurance industry; we urge clients to continue and maintain their policies with Sasria and would like to assure them of our determined resilience to maintain our excellent relations”. 

Writer’s thoughts:
There are two sides to every story. In today’s article, we report on SAIA’s and Sasria’s assessments of the post-riot claims pay-out performance. We also hint, by sharing Massmart’s experience, that many insureds will have suffered big losses on their own balance sheets i.e. ending up being self-insured for sizeable chunks of their civil commotion losses. Have your commercial clients been happy with the level of cover and / or service received from Sasria following the July 2021 rioting? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

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