Load shedding causes unrest in industry

Dawie Buys, Manager Insurance Risks at SAIA.

When your client is faced with a particular loss, and they have exhausted every avenue to reclaim this loss, without any luck, what is the next step in the process to seek restitution? In the case of load shedding, the answer at the moment is that there is no next step. However, the South African Insurance Association (SAIA) is looking into this.

Load shedding is very topical at the moment. With Eskom struggling to keep the power supply stable, everyone is asking when this will end. It is hard to answer this question as the maintenance and restoration of the power supply may take anywhere between one to four years. However, for the next few years we are to expect an electrical grid that is constantly under pressure.

The next question is what will happen to clients’ insurable risks during this period? During load shedding, the power typically goes off for a few hours at a time. This is a sufficient period of time for a backup battery to run an alarm system of a house or a business. But, if the lights are off for an extended period of time and there is a break in, will the insurer pay?

The letter of the law

Dawie Buys, Manager Insurance Risks at SAIA, pointed out that although most domestic policies are subject to a burglar alarm warranty insurers have the consumers’ interests at heart. They are committed to the fair treatment of their customers and they will assess each claim individually on merit taking of all circumstances into account. He added that some SAIA members have already publicly declared that they will deal with such claims sympathetically and will look for reasons to pay rather than reject these claims.

However, while certain insurers have given this assurance, it needs to be pointed out that insurers are not legally compelled to pay out claims related to load shedding. “Load shedding is not fortuitous, not suddenand is not unforeseen as it is a planned intervention by Eskom.The public is aware of the problems that Eskom is currently having, and the load shedding schedules are made public through various platforms. The media coverage regarding load shedding is also in the public domain, so it is not as if the public is in the dark regarding these challenges,” said Buys.

He added that while this is the case, there is no reason why an insurer should reject a claim provided that the client can prove that all prudent and reasonable steps were taken to ensure that his or her alarm system was in fullworking order prior to load shedding. The normal course of action is to go to the Ombudsman for Short-Term Insurance (OSTI) if the client feels that an insurer unfairly rejected a claim. Buys mentioned that the Ombudsmen are increasingly looking at equity principles when making their rulings. They are no longer just focusing on the letter of the law, they are looking at the events leading up tothe claim and if the client acted in a prudent manner.

Watch out for the surge

So we know where clients stand when it comes to burglaries during load shedding, but there are other risks which need to be considered. When the power goes off, we do not run around the house unplugging every appliance, but maybe we should because when the lights come back on there is often a surge in power which may damage appliances.

“There is no uniformity in the industry when it comes to covering this risk. Some insurers cover it, other exclude it, and some remain completely silent about it. There has been a lot of press coverage over the duties of the broker when it comes to policy explanation. While a broker needs to act within the guidelines specified by the Financial Advisory and Intermediary Services (FAIS) Act, there is also a responsibility for the client to read his or her policy properly as it is a binding contract,” said Buys.

“Brokers should increase their consultations with their clients in order to establish whether they are sufficiently covered for all the risks associated with load shedding,for example losses due to a power surge. This will ensure that nobody is in a compromising position,” continued Buys.

Opening dialogue towards a solution

If your power goes off for a period longer than the stipulated load shedding schedule, and you have a claim, do not expect any joy when knocking on the door of Eskom or Municipalities. These institutions have signed contractual agreements which exclude them from all liability during load shedding.

The environment is changing, and with it the insurance industry will need to change. “In order to remain relevant and valuable for our members, the industry will have to look at new risks associated with the changed environment, including load shedding, and will have to proactively develop new products which could provide cover for such new risks,” said Buys.

This will take significant effort, but Buys pointed out that there is interest from the industry. The policy wordings and products will have to be designed in a very specific way. However, bearing in mind the competitive nature of the industry, insurers will each have to determine what they would be prepared to cover and at what cost.

During December, there was an industry press release which suggested that there is cover for claims repudiation. Buys pointed out that he is not aware of such a product in the industry. Because there is no specific product which deals with load shedding per se, brokers are advised to be vigilant and consultative when it comes to the risks associated with load shedding

Editor’s Thoughts:
The dynamics which drive the insurance industry are changing. We can no longer rest on our laurels as to what we believe reasonable and prudent actions are. It is clear that brokers are expected by industry associations to go above and beyond the normal call of duty when consulting with clients, but it is also clear that there is an increasing element of client responsibility being raised in the industry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.