If South Africa suffers a grid failure — a total or partial breakdown of the national electricity system — households and businesses are unlikely to have insurance cover for damages and loss.
Insurers say grid failure at a municipal, provincial or national level is not an insurable risk, “as the potential losses cannot be known and therefore cannot responsibly be insured”.
On the back of unprecedented levels of load-shedding, many insurance companies are implementing a general electricity grid failure exclusion to their policies.
“Unlike load-shedding that is deliberate with scheduled intervals, grid failure will be more sustained and will affect a wider area than is usually the case with load-shedding.
“For example, it may affect a whole city or the entire Gauteng, if not nationally,” said Collin Molepe, managing executive at Absa short-term insurance.
Clients will still be covered for losses not subject to a specific grid failure exclusion. “For example, if your insured cellphone gets stolen during grid failure it will be covered.”
If an electrical item purchased by a client has power surge cover, “the loss will be covered” when electricity is restored in the event of a grid failure.
“The decision to investigate the impact of grid failure for customers stems from the ongoing unpredictable and increased frequency of load-shedding. It is important to note, however, we, as Absa, are not in a position to determine whether grid failure is likely.”
Rudolf Britz, chief actuary at Momentum Insure, said grid failure is seen as a “force majeure/act of God”.
“It would be systemic and at large scale and therefore no longer an insured event. Events can only be insured if they have a fairly low probability of happening and are randomly scattered.
“During a grid failure, cover will be in place for all causes seen as sudden and unforeseen, excluding the failure of the electricity grid itself. So yes, cover remains intact for anything other than the grid failing.
“The chances of a total grid failure are becoming higher, but I wouldn’t say South Africans should prepare. From an insurance perspective it is good practice to be clear, since we have learnt the hard way during Covid-19 lockdowns that interpretation of wordings can become murky when the pressure is on.
The decision to investigate the impact of grid failure for customers stems from the ongoing unpredictable and increased frequency of load-shedding.
— Collin Molepe, managing executive for Absa Short-Term Insurance
“There are two things insurers are worried about — accumulation of losses during a grid failure and the unknown losses that may occur during grid failure,” said Britz.
Soul Abraham, retail CEO at Old Mutual Insure, said grid failure is a systemic risk and it is not possible for insurance companies to protect against systemic risk.
“Also, reinsurers have indicated they will not be able to provide cover for grid failure in future.”
Old Mutual Insure introduced a national grid interruption exclusion last year.
“We started implementing grid interruption exclusions from July 2022 on the insurance of large/complex risks. We do not exclude, for example, losses caused by a traffic light not working during a national grid interruption and this then causing a motor vehicle accident, or losses due to potholes that were not visible [due to no lighting on the road caused by a national grid interruption].
“Similarly, our customers would still have burglary cover during a national grid interruption if the alarm at the risk address was not functional due to lack of battery support. However, each claim will be assessed on its own merits.”
But Abraham warned that when the frequency and severity of claims increase it can impact the availability and affordability of insurance coverage.
Philippa Wild, chief underwriting officer at Santam Broker Solutions, said grid failure exclusion has been introduced “on the back of unprecedented levels of load-shedding and pressure from global reinsurers that require Santam to reduce our exposure to claims that could arise from such a systemic event”.
“This includes business interruption claims that could arise from the failure of public utilities and public telecommunications due to grid failure.
There are two things insurers are worried about — accumulation of losses during a grid failure and the unknown losses that may occur during grid failure.
— Rudolf Britz, chief actuary at Momentum Insure
“For personal clients this exclusion relates mainly to existing cover provided for the spoiling of contents in refrigerators and freezers. It also provides clarity that any damages caused directly or indirectly from a grid failure will not be covered.”
Wild said Santam would continue to provide cover for power surge claims “in accordance with the terms and conditions stated in each client’s contract, provided the client opted for this cover”.
“The grid failure exclusion is being implemented on all our existing policies.
“These and other policy revisions introduced in recent months reflect the unprecedented shifts in the risk environment over the past year. Santam advises policyholders to discuss the changes with their intermediaries or directly with their insurer. We wish the extent of our actions wasn’t necessary, but the complexity of a grid failure risk has unfortunately compelled us to include these measures.”
Wild said Santam regards grid failure as a total or partial interruption, interference, failure or suspension of the supply of electricity.
“Damage resulting from this and/or the restoration of the electricity will not be covered. This differs from scheduled load-shedding. Damage as a result of power surges and dips after scheduled load-shedding is covered in full under our personal lines cover and as an optional cover under our business product.”
Warwick Bloom, spokesperson for Hollard, said they recently informed brokers and policyholders they’ve added a general exclusion to their policies excluding cover relating to electrical grid failure.
“The exclusion clarifies the distinction between load-shedding, which remains covered, and electrical grid failure, as Hollard has defined it.
“This exclusion means Hollard will not cover losses directly or indirectly caused by, attributable to, arising out of, resulting from, following or in any way in consequence of or in connection with any electricity grid failure.
“The exclusion applies to personal lines products [typically insuring individuals/ consumers] and commercial policy, which cover businesses.
“One of the lessons of Covid-19 is insurers need to be careful in understanding the exact nature of the cover they provide and the implications of providing that cover for their sustainability.
“In addition to this heightened need to be definitive, reinsurers have indicated they are not going to provide reinsurance from such risks in future, which places insurers at substantial risk of insolvency should they continue to cover such a risk.”
Natasha Kawulesar, spokesperson for Outsurance, said: “Considering grid failure, while a remote possibility, is not an unforeseen event, we don’t consider this will be cover that is available in the market in future. As such we are discontinuing cover and communication will be sent to our clients within the new few weeks.”
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