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Riot insurance cover to soar by up to 1736%

19 January 2022 Gareth Stokes

The cost of insuring a heavy commercial vehicle (HCV) against loss or damage due to civil commotion, riots, strikes and terrorism could soar by as much as 1736% as South Africa’s special risks insurer sets about rebuilding its balance sheet after a horrific 2021. This according to Sasria SOC Limited’s 2022 rate renewal schedule, which is likely to go ahead from 1 February 2022 with minimal changes to those published early this year.

The R32 billion knock-out blow

Sasria suffered a R32 billion knock-out blow due to widespread rioting in parts of KwaZulu-Natal and Gauteng in July last year. In its most recent update on the event, Sasria said it had made steady progress toward settling the 14051 claims it has received. But the state-owned insurer had to turn to its only shareholder for help, with government injecting R3.9 billion shortly after the disaster, and allocating another R11 billion during the November 2021 Medium Term Budget Policy Statement. “We would like to extend our gratitude to the National Treasury for the additional R11 billion allocation [that will] significantly contribute towards honouring clients’ claims and recapitalising the organisation,” Sasria wrote at the time. 

FAnews readers will be close to the events that unfolded in July 2021. Many have family or friends who were affected by the drama, and many who are involved in the insurance and non-life insurance broking industries will have been assisting clients and policyholders with the claims process. Sasria has confirmed that the fire commercial category tops the claims list, followed by claims for loss or damage to heavy commercial vehicles and light commercial vehicles, and finally business interruption. 

Slow progress, with good reason

Sasria undertook to pay 80% of all claims by December 2021, and 80% of claims of up to R60 million by the end of March 2022, but has admitted that some claims could take up to 18-months to finalise. Those who have an intimate knowledge of insurance operations will find it hard to level objective criticism at the insurer for the slow progress, because settling high value claims takes time. “While there has been commendable progress, Sasria acknowledges the challenges related to its capacity in the market, such as the internal capacity to manage large losses, overstretched Loss Adjusters, clients’ difficulties in formulating claims and policy interpretation,” said Sasria MD, Cedric Masondo, in his November 2021 communication to the market. 

Steps taken to expedite the claims pay-out process included increasing the mandates of selected agent companies, increasing the Sasria staff complement and turning to South Africa’s insurance broker network to assist clients with claims formulation. Agent companies, better known as traditional insurers, were thus “engaged and mandated to facilitate claims of up to R1 million” and had by 16 November already paid over R1.8 billion of the R2.6 billion float advanced by Sasria. Although 85% of the claims received were under the R1 million level, the insurer must also process 2000 claims exceeding R1 million each! 

Actions have consequences

Sadly, South Africa’s short-term insurance policyholders are going to have to cough up for the hooliganism of a small sub-set of the population. The massive losses incurred by Sasria last year have thrown the insurer’s underwriting numbers totally out of whack, and the insurer has no choice but to make sweeping changes to the premiums charged on certain classes of business. “The 1 February rate increases have come about to ensure the sustainability of Sasria’s model and to enabled them to retain their good standing as a licensed insurer,” said Barry Taylor, Chairman Non-Life Executive Committee at the Financial Intermediaries Association of Southern Africa (FIA). He added that Sasria had to meet the capital solvency requirements set in the insurance legislation. 

Masondo, in his November 2021 update, reiterated that the insurer was committed to rebuilding its financial reserves. “As we seek to future-proof Sasria against similar future incidents, we also aim to be a credible and trusted industry player,” he said, before adding that the insurer’s drive was to have social impact, be efficient and ethical. Apparently the insurer had to obtain approvals from the Financial Sector Conduct Authority, Prudential Authority and National Treasury for the increases, which will no doubt have a significant financial impact on commercial insureds. Fire commercial and heavy commercial vehicles will be hardest hit, in line with the exposures in these respective categories. 

The rate sheet circulated by the insurer early 2022 notes that the rate for F2: Fire Commercial will increase from 0.0174% per R1 on cover per annum, to 0.02906%, an increase of 67%. Sasria has, however, acknowledged that the complexity of South Africa’s commercial buildings market requires a further segmentation to allow appropriate pricing for different risk profiles. The above rate will therefore only apply to commercial buildings that do not fall under a newly-created category called F2(O): Fire Commercial Office, specifically for commercial office premises. The F2(O) rate will be 0.02088% per R1 of cover per annum. Comparing two commercial buildings valued at R5 million, with one being a logistics or warehousing premises and the other an office building in a corporate office park, Sasria fire cover would cost R1453 and R1044 per annum, respectively. 

Moving goods just got a whole lot pricier

The biggest impact occurs in the commercial vehicle space, with heavy commercial vehicles, defined as trucks with a gross vehicle mass (GVM) exceeding 3500 kilograms, attracting a staggering 1736% increase. Sasria will hike its M8: Heavy Commercial Vehicles rate from 0.01879% per rand per annum to 0.345057%. And that means that Sasria cover on an HCV worth R2 million will increase to R6901.14 per annum for 2022 compared to R375.80 per annum last year. Light commercial vehicles in the M2: Light Commercial Vehicles category will cost 15.5 times more to insure. 

Industry stakeholders might disagree about the fairness of this hike, but few will argue that Sasria premiums have been kept artificially low over the past, especially given the rising number of socially- and politically-motivated protests and riots. One need only survey the daily news to learn of another truck being set on fire on the N3 highway, for example. According to Taylor, one must consider the rates increase for commercial vehicles in line with the risks presented to the insurer. 

How can brokers respond?

I recently read an article that suggested short-term brokers might save their clients some money by pushing for 2022 Sasria renewals before 1 February 2022; but that seems questionable advice. Taylor pointed out that Sasria covers are renewed alongside an underlying short-term insurance policy, and that it would be difficult if not impossible to segment the Sasria renewal from the main policy renewal. Risk managers and short-term brokers will be left to explore other ways to reduce insurance costs, especially for commercial fleet owners. Insureds could possibly explore voluntary deductibles or self-insurance models to mitigate their 2022 riot insurance costs. 

Whatever discussions take place between today and the 1 February increase deadline, you can be sure that insuring commercial assets against civil commotion, riots, strikes and terrorism will be far dearer going forward. 

Writer’s thoughts:
As an ordinary consumer, you probably get in a twist over a 20% electricity hike… Just imagine you are running a manufacturing business with a fleet of 20 trucks, facing a special risks insurance increase of 15 to 17 times last year’s bill! Are you shocked by Sasria’s 2022 rate increases, or is it expected given the sheer scale of the July 2021 rioting plus the ongoing increase in frequency and severity of protest losses? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

Comments

Added by Humphrey, 19 Jan 2022
There is so many things one could say about this:

1. 1736% and similar increases - only when you are a monopoly
2. I remember years ago SASRIA was making so much money they paid humungous amounts to their shareholder (government). If they had of rather kept that and invested it there would probably be no need for premium increases.
3. Cat cover insufficient?
4. "Actions have consequences" - hmmmm what ever happened to the perpetrators? (we heard about a number of instigators - whatever happened to them?)
5. The increases are effectively to an extent just an increased tax because the police and army (which we already pay taxes for) could not / would not control the situation
6. On rating why do vehicle values not come into rating like conventional insurers do (how can a R 1 million vehicle cost the same as a R 10,000 vehicle?). Oh yes being a monopoly allows for inefficiencies like this.

Report Abuse
Added by Willie Louw, 19 Jan 2022
It is a pity though, that SASRIA do not differentiate between the following uses -
1. Commercial and
2. Agricultural
With the latest costs/prices of agricultural tractors/implements, which is utilized, normally, far from potential SASRIA-type hot spots, the excessive tariff increase is can not be motivated.
The same goes for agricultural stores which are also defined as "commercial" structures.
I would suggest that a separate tariff structure be set up for items for agricultural use.
I can just imagine the effect it will have on the mega farmers, and even the small scale farmers.
Perhaps one should advise against insuring agricultural use items for SASRIA??

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Are you shocked by Sasria’s 2022 rate increases, or is it expected given the sheer scale of the July 2021 rioting plus the ongoing increase in frequency and severity of protest losses?

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