Seven years of rolling blackouts will hurt the insurance industry
Whether you are based in the Western Cape or Gauteng you doubtless have few positive words for national power supplier Eskom. The company is cracking under the combined pressure of years of neglect and economic growth that has surpassed even the most opti
This statement got us wondering whether anyone had bothered to assess how much these blackouts would cost the country. We were recently in a busy shopping mall when a blackout (what a wonderful term) rolled over our area. As hundreds of potential shoppers traipsed out of the dark centre we poke to a very disgruntled hardware store owner, who insisted that rolling blackouts had cost his business in excess of R30 000 in turnover in the month of October alone.
Road accidents and appliance failures happen in the dark
What about the cost to specific industries? Obviously manufacturers will be hit hard – but power failures will affect insurers too. Short-term insurers are in for a power-cut related surge in claims. The unstable power supply is already wreaking havoc with computer and other electronic appliances leading to a vast increase in the number of claims. Many users cover computers and other appliances for power surges under the electronic ‘all risks’ section of their policies. And that means insurers will end up paying regardless of how the ‘surge’ occurred.
At the same time, the repeated power cuts are causing havoc on the country’s roads. Each time Eskom cuts the power, traffic and other road lights go down and increase the risk of serious road accidents. Motor vehicle insurance has long been blamed for poorer short-term insurance margins as the cost of repairing and replacing vehicles continues to soar.
Both business and private insurance owners should check their short-term policy wordings to determine what is covered in the event of power failures. This follows comments made after the rolling blackouts experienced in Cape Town during 2006 – when problems at Koeberg resulted in a number of lengthy power cuts.
Policy wording may not cover “blackouts”
At the time, Caroline da Silva, head of commercial underwriting at Santam made the following comments: “There are two important things to consider here. The first is that when the loss is as a result of mechanical or electrical breakdown at the supplier, cover only kicks in once the power is down for 24 hours or more. Some policies may even specify 72 hours of interruption before they will pay out.
“The power failure in the Western Cape has been managed with a rolling blackout plan where power has been deliberately withheld from certain areas for short periods of time to prevent system overload – businesses are unlikely to have experienced interruptions for the minimum of 24 hours.
“The second point of importance is that [many] policies don’t cover situations where power is deliberately withheld by the provider or where the interruption is a result of utilities being unable to supply sufficient power.”
We suppose the real benefactors of all this power inactivity will be the distributors of generators to small business and private buyers. It is easy to warrant spending four grand on a dirty diesel generator when you know the power problem is going to be around for seven years.
Blame Eskom for global warming too
Another huge problem for short-term insurers, re-insurers and underwriters is climate change. Global warming will cause increasingly unstable weather conditions in coming years. And that means floods like those witnessed in the Western Cape a couple of weeks ago will occur more frequently. The recent lightning strike at an Engen refinery in Durban cost some insurance company R120m. Damages in the Western Cape are conservatively put at R600m.
Ironically (without being overly creative) we can blame Eskom for the bad weather too. A recent carbon emissions study which included responses from 70% of South Africa’s Top 40 listed companies revealed that BHP Billiton, Eskom and Sasol produce 83% of the country’s disclosed emissions, although industrial giant Arcelor Mittal failed was among companies that failed to participate. It further emerges that Eskom is the second highest polluting power company in the world.
The Confronting Climate Change Initiative of the Centre for Global Development (Carma) flagged 11 of Eskom’s power plants as dirty. Eskom’s coal burning power plant in Kendal (Witbank) discharges 29m tonnes of carbon emissions per year. And even though Eskom hopes to reduce coal to 70% of its power mix by 2025 the massive surge in power demand by then will mean that coal plants will probably produce more than the current 214m tonnes! In summary, with or without power, it seems short-end insurers are going to take a beating.
Editor’s thoughts:
Government has managed power in much the same way as health, security, education and transportation. They have simply sat on their hands while problems in each of these departments spiral out of control. In fact, we estimate that in some areas management has been so poor that the departments are worse off (and the problems bigger) than they were ten years ago. We would love to hear your comments on the current power problems – even if you just tell us about your shiny new generator. Add your comment at the end of this article, or send it to gareth@fanews.co.za
