Navigating the Current and Post-Electricity Shortage Crisis in South Africa: An Insurance Perspective

Rheinhardt Schnetler

South Africa has been plagued by a significant challenge in the form of an electricity shortage crisis, causing widespread disruptions across the nation.

The shortage resulted in power outages, affecting businesses, households, and infrastructure. Let us examine the current implications, challenges, and potential solutions for policyholders and insurance providers, as well as how insurers will need to re-adapt as the country hopefully recovers from the energy crisis in the not-too-near future.

Load shedding and power outages have widespread knock-on effects.
Property and Infrastructure Damage:

• Power surges, load shedding, and other electrical issues during the shortage can cause damage to electrical equipment, machinery, and property.
• Power surge increases the likelihood of loss or damage to assets and electrical goods.
Cybersecurity and Data Breach Risks:
• During power outages, businesses may resort to alternative power sources and backup systems, which can increase the risk of cybersecurity breaches and data loss.
Renewable Energy and Energy Solutions:
• The electricity shortage crisis highlights the need for critical development and collaboration between businesses, investment, and government.
• Mass installation of inverters and Solar paired with a lack of legislated and professional oversight has created an increased risk of bad workmanship.
Adverse Risk changes and increase in loss probability:
• Electricity outages in public infrastructure leads to an increased likelihood of car accident due to traffic lights not being in operation.
• Increase the likelihood of theft as alarms and security have limited battery life.
• Mass storage, distribution, and sales of renewable energy goods have led to increased exposure to theft from syndicates.

Insurance Companies have also had to re-evaluate on a micro and macro level.
Evaluating Insurance Policies:

• Insurers have been forced to re-evaluate market conditions, Risk Assessments, Financial forecasting, re-insurance terms, and increases all whilst having to communicate the various industry changes and updated terms and have an in-depth understanding of the effects of the new policy terms and conditions.
Increased Claims Volume:
• Insurers and brokers have seen a surge in insurance claims related to power surges and claims related to power outages. The increased claims volume requires more efficient claims processing systems, effective communication channels, and expedited settlement procedures to manage the increased workload promptly and fairly. However, this also affects financial forecasts, insurer balance books, re-insurance costs, and terms and all ultimately trickling down to our customers.
Risk Assessment and Underwriting:
• The electricity shortage crisis necessitates a reassessment of risk profiles for businesses and homeowners in South Africa. Insurers and brokers need to collaborate closely to analyse the potential impact of future power outages on various sectors and adjust their underwriting practices accordingly. This may involve revising risk assessment methodologies, updating policy terms, whilst trying to maintain a client-centric and fiscal awareness of the South African market.
Developing Specialized Products:
• To address the evolving needs of policyholders, insurers and brokers should develop specialized insurance products tailored to an electricity shortage landscape. By providing comprehensive solutions, insurers and brokers can enhance their value proposition and demonstrate their commitment to supporting clients during challenging times.
Educating Policyholders:
• Insurers and brokers play a crucial role in educating policyholders about the potential risks associated with electricity shortages and the importance of appropriate insurance coverage. They should proactively communicate with clients, organize informational sessions, and provide guidance on risk mitigation strategies. By promoting awareness and knowledge, insurers and brokers can help policyholders make informed decisions and minimize their exposure to future crises.
Strengthening Partnerships:
• Collaboration between insurers, brokers, and government entities is vital during this crisis. Insurers and brokers should engage in discussions with relevant stakeholders to better understand the government's long-term plans for energy infrastructure and their potential impact on insurance needs. By actively participating in these conversations, insurers and brokers can align their strategies with national goals and contribute to the overall resilience of the insurance industry.

Post-Electricity Shortage
Whilst adapting to the current climate, re-insurers, insurers, and analysts alike have been slow to address the plethora of issues, which have caused widespread knock-on effects. We have been reactively implementing damage control measures, instead of proactively changing risk analysis and risk management protocols. It’s not all doom and gloom, but if we have learned anything from COVID-19 is that the world is unpredictable and often we don’t accurately assess the risks associated with scenarios leading to reactive measures to mitigate losses. This approach promotes detrimental views of the industry, loss of trust, and general disdain.

The Post-Electricity shortage landscape is yet undefined, but as with any hill being climbed eventually, we will reach the top. The question we need to start asking is:

• What are the time frames
• Are we prepared to re-adapt our risk analysis and management protocols?
• Do we have the foresight to be proactive and not reactive?

In conclusion:
The electricity shortage crisis in South Africa poses unique challenges for insurers and brokers. By proactively addressing the implications of the crisis, insurers and brokers can support their policyholders, guiding them in assessing their insurance needs, and offering specialised products to mitigate risks. Moreover, by fostering collaboration and strengthening partnerships, insurers, and brokers can actively contribute to the country's recovery and long-term energy resilience.

The post-electricity shortage landscape provides both challenges and opportunities for the insurance industry to demonstrate its adaptability and commitment to protecting policyholders in the face of unforeseen events. In recovering from the aftermath of the era of state capture, lawlessness, governance failures, and remedying critical problems, it’s important to come together as people, as businesses, and as a nation for the overall well-being of the country, as we are yet to properly assess how the post electricity shortage will once again change the landscape for all parties concerned.