Insurance companies refusing to cover total Eskom grid collapse a good thing — ombud
South African consumers should view insurance policy exclusions for a total grid failure as a good thing, as the industry could collapse without them.
This is according to the senior assistant ombudsman at the ombudsman for short-term insurance, Peter Nkhuna, who said the insurance policy amendments ensure that insurers can continue to cover other risks.
“With all the reports and experiences that we have been going through, it has become more and more of a real possibility that there could be a total collapse of the grid,” he said in an interview with Cape Talk.
“Therefore, insurers are already taking that into account in their risk calculations and saying it is too much of a risk for us to take, and we will make it clear in advance that it is something that they are not prepared to undertake.”
“If insurers were to carry these losses, there is a very good risk that it could collapse the industry. Then we end up with absolutely nothing,” Nkhuna added.
Therefore, such policy amendments are made to ensure insurance companies can continue covering other claims.
“Perhaps it might be a better thing that we don’t lose everything but only some of the cover. Maybe it is not all doom and gloom,” Nkhuna said.
He explained that one of the issues some insurers have raised — the loss of backing for a total grid collapse from their reinsurers — is primarily to blame for these exclusions.
“Insurers tend to have reinsurers backing them up. Providing further insurance to them,” Nkhuna said.
“There have been some of these reinsurers coming to the industry saying these are some of the risks we have identified, we are no longer willing to provide cover for them.”
“They [insurers] also face that gap on their side, and without the backing of reinsurers, they would also be exposed,” he added.
He explained that while most insurers continue to cover load-shedding-related risks, a complete grid collapse has become a “real possibility” that insurance companies didn’t previously consider.
“Some insurance companies used to provide cover for load-shedding. Others didn’t. Some have continued to do so. Others are not,” Nkhuna said.
“Some have added this other provision that in the case of a total failure, there will be no cover.”
“That is a completely different risk which may have not been foreseeable and may have not been taken into account when the policy was originally underwritten,” he added.
Outsurance jumps on the grid collapse exclusion bandwagon
Outsurance has joined the growing list of insurance companies that have added grid collapse exclusions to their policies, removing cover for any loss, damage or liability caused by an Eskom blackout.
It joins the likes of Hollard Insurance, Momentum Insure, Santam, and Naked Insurance.
The insurer attributed the change to a need to review its cover in light of the higher risk of a blackout.
“The increased levels of load shedding over the last year, with the possibility of an electricity grid failure, has required a review of our cover,” it said in a notice sent to its customers.
Outsurance explained that while the risk of a grid collapse is still remote, it can no longer consider it an unforeseen event, meaning it no longer falls within the scope of insurance or reinsurance cover.
“Whilst it is regrettable that this cover will no longer be available, to ensure sustainability and that we are there to assist you on future interactions and claims, it is a necessity,” it said.
The insurer has given its clients 31 days’ notice of the change, which will take effect on 1 May 2023.
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