Sasria's grid failure cover retraction signals shift in South Africa's insurance landscape

Sasria SOC Ltd.’s recent retraction of a notice, which initially stated that it would not cover claims resulting from civil unrest following grid failure, highlights a significant development in South Africa's risk management and insurance landscape according to leading risk consultancy Riskonet Africa.

Sasria SOC Ltd is the only non-life insurer that provides special risk cover to all individuals and businesses that own assets in South Africa, as well as government entities, based on the Sasria Act which established it for this purpose.. This is unique cover against risks such as civil commotion, public disorder, strikes, riots and terrorism, initially  provided  at affordable premiums.

The notice was the first of its kind, and Sasria has always been considered the insurer for any loss arising from civil unrest, regardless of the cause. Sasria's decision was based on the urging of its reinsurers, who have restricted cover for Sasria, and the company consequently limited its cover on assets and business interruption following grid failure. Sasria has already passed on reinsurance cover restrictions by limiting cover to R500 million per event following the 2022 riots in KZN.

Despite the retraction of the notice, Sasria is likely to impose cover restrictions for civil unrest following grid failure on future renewals, to maintain its reinsurance cover. Clarity is needed from the State as Sasria’s reinsurer of last resort, on whether all losses following civil unrest are protected, as stated by the Sasria Act.

Riskonet says Sasria's reserves grew substantially in the years following its formation which lead to  the company paying out a dividend of over R10 billion. Has these reserves been retained and reinvested, Sasria would have had much of the capacity needed for the claims arising from the KZN violence.

 Additionally, it appears that Sasria's exposure modelling was inadequate, and the level of catastrophic losses experienced in the KZN riots was not adequately considered.

According to Riskonet Africa’s Strategic Risk Principal Volker von Widdern, the increasing price of Sasria’s insurance is a clear trigger that more attention should be paid to understanding the risk drivers for civil unrest and to designing risk management and alternative risk transfer models. As global trends in political riot, terrorism and civil unrest continue to escalate, it will become increasingly difficult to obtain cost-effective cover for  these exposures.

Notes Von Widdern: “Given the declining cover scope and limits offered by Sasria, it is important for businesses to take a medium to long-term strategic view of the costs of cover for civil unrest and consider more efficient models to address these exposures, such as catastrophe bonds. The tax paid by corporates, which should fund the SA government's support to Sasria, is unlikely to be used as a mitigant to the premium increases. It is more likely that Sasria will be required to become more self-sufficient, driving premium increases further.”