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Industry’s take on ‘Day Zero’

06 February 2018 Myra Knoesen
Myra Knoesen, FAnews Journalist

Myra Knoesen, FAnews Journalist

The consequences of the impact of the drought and current water restrictions implemented by the Western Cape authorities will be dire not only for Cape Town, but the country as a whole.

According to The Huffington Post South Africa, it has been dubbed "the worst drought in a century", a drought the department of water and sanitation says it "unfortunately never predicted or anticipated".

The challenge exceeds anything 

According to an article published by the Daily Maverick, Western Cape premier Helen Zille said, “As things stand, the challenge exceeds anything a major City has had to face anywhere in the world since the Second World War or 9/11. I personally doubt whether it is possible for a city the size of Cape Town to distribute sufficient water to its residents, using its own resources, once the underground waterpipe network has been shut down.” 

When Cape Town dam levels drop to 13.5% the city will begin to shut down its system in residential areas. Zille said a week before dam levels hit 13.5%‚ the city council would announce the date of Day Zero for residential suburbs. Once taps were turned off‚ residents will have to collect a daily allowance of 25 litres from 200 distribution points across the city.

Adapting to the situation

With this, from an insurance perspective, FAnews spoke to a few companies for their comment on the current situation.

The effect of the drought will clearly have forced many businesses to begin thinking differently. Regardless of insurance, the effects of the drought could be felt long term. Both individuals and businesses will need to look to adapt to what is becoming a new norm. We need to explore new technologies and gain better understanding of best practices to assist us in adapting to changing environments,” commented Gary Ferguson, Technical Claims Resolution Division, Aon South Africa. 

Marike van Niekerk, Legal and Compliance Manager at MUA Insurance Acceptances says, “We have not seen much change in policy conditions due to climate change. We might see changes affected as severe weather conditions increase. We have not witnessed an increase in claims as a result of the drought yet. However, we do expect to see claims for drought-related issues in the near future (for example, damage to swimming pools caused by lower water levels).”

The importance of educating clients

Van Niekerk advises however that, “A lot of policyholders are still unaware that damage caused by the drought is not covered by their policies. It is therefore vital that brokers communicate to their clients that damage caused by drought is not a peril that is typically covered by insurance policies and that they should take the necessary steps to minimise damage.” 

“With day zero lurking for policyholders in the Western Cape, it is vital that brokers advise clients on which perils are covered and which circumstances are excluded and make sure that their clients understand that they cannot count on their insurance policies to cover losses associated with drought,” continued van Niekerk. 

Our advice to brokers is to review their clients’ policies and consult with their insurers and clients. For the current situation, brokers need to inform their clients that drought, unlike fire, is not an insurable event,” says John Melville, Executive Head: Risk Services, Santam. 

The opportunity for insurers

“For insurers it is a case of keeping abreast with new and emerging risks in South Africa. Insurers must continuously develop new methods to understand the changing risks and potential exposures and then to adapt underwriting practises accordingly,” continued Melville.

On the positive side, Melville says the current drought provides opportunities for brokers to contact their clients and review their policies to ensure that their clients are appropriately insured. There may also be an opportunity for product innovation given the ‘new normal” circumstances that the Western Cape is faced with.

According to Johan van den Berg, Manager of Specialised Crop Insurance at Santam, drought conditions are expected to continue in the 2018 winter.

“We need to look to the future to prevent day zero but also to learn and make sure this type of scenario does not repeat itself,” concluded Melville.

Editor’s Thoughts:
At the moment, it is only a matter of time, or rather, a wait and see game as Cape Town anticipates the arrival day of ‘day zero’. As Zille said, with taps being turned off, we are bound to see other problems emerge e.g water being stolen, crime etc. Does this possibly mean trouble for the insurance industry? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za.

                     

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Added by thundafund.com, 08 Feb 2018
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