There is a lot going on in the world at the moment – and it has been the case since 2020. In terms of global risk, climate change and severe weather events; geopolitical uncertainty; rising unemployment; cyber risk; and new technologies are all proving a challenge for Insurers locally and internationally.
In the last few weeks, Russia’s invasion of Ukraine has introduced yet more risk, with the economic fallout – especially in terms of fuel prices, grain supplies and the impact on European exports – being felt around the world.
Closer to home, South African businesses are facing yet more risk in the form of the country’s power grid and, with July 2021 still fresh in our minds, the possibility of more civil unrest.
As we navigate Eskom’s loadshedding schedules (especially considering the possibility of diesel/fuel shortages), with one eye on the news and another on SA’s Covid infection rate, it’s clear that we are, indeed, living in interesting times.
If the landscape is tricky for business owners, consider how difficult it is for the Insurers that need to weigh up the risks, the potential scale of losses, and the risk appetite and support of reinsurers. Solid risk management principles are therefore a discipline that is growing in importance for both private and public sector organisations. Given the complexity of the wide range of events that could affect a business or government, the actuarial approach is how Insurers determine the extent of their participation within each sector they provide insurance products.
So, what to do?
It’s more important than ever to spend quality time with your broker. Conduct a thorough risk analysis based on your risk register; identify any gaps in cover; schedule regular check-ins with regards to your current situation and changing needs; and, critically, make sure you’re up to speed with the latest coverage changes when you renew your policies.
Insurance is only one component in a solid risk management plan. Risk transfer mechanisms can consist of self-insurance or self-retention limits and your broker is best informed to assist you in setting up alternative risk transfer options.
Supply chain disruptions have an impact on your Business Interruption Cover
Thanks to the war in Ukraine and the latest Covid-19 lockdowns in China, many businesses are experiencing a delay in operations. You only have to think of vehicle manufacturers who rely heavily on parts sourced from Europe and China. In fact, media reports over the last few weeks suggest that some luxury vehicle brands have had to suspend operations at some of their manufacturing facilities around the world because of the prevailing situation.
Unfortunately, there is no rescue for these businesses in the form of their business interruption cover. The manufacturers can't claim for many of these risks against their policies as Interruption because ‘No Damage’ is an exclusion. In other words, if the interruption is caused by external factors where there is no actual damage to property (say for example, due to a global pandemic or the outbreak of war) then in most cases, there is no recourse against the Insurance policy.
Business Interruption cover usually follows damage as a result of ‘Defined Events’ such as fire, lightning, explosions, special perils (for example, major storms) and malicious damage. These perils are usually found in the material damage sections of your policy.
South Africa’s power grid
The situation in Europe is also playing havoc with diesel supplies, which has a knock-on effect on the country’s power generation – and the threat of increased loadshedding and outages.
But are you covered for business interruption losses if the grid goes down for a significant amount of time?
In the past, this scenario may have been covered by ‘Public Utilities – Extended Cover’ and ‘Public Telecommunications – Extended Cover’. Today however, the risk of a public utility failure is deemed too great – and the potential losses too large – for reinsurers.
In other words, reinsurers have withdrawn their support for business interruption covers that provide extensions for ‘non-damage’ (where no physical damage to property has occurred), making it impossible for insurers to offer this cover anymore. We have recently been informed of local Insurers withdrawing certain of these extensions as there is no re-insurance support for it.
Sasria
In a similar vein, Sasria has also announced a change to their product offering after engagements with their reinsurance partners earlier this month.
Sasria had extended its primary R500 million Loss Limit to allow for clients to purchase ‘Excess of Loss Cover’ up to a combined limit of R1 billion above the primary R500 million coupon in respect of Material Damage, Standing Charges/Working Expenses and Contract Works. This cover was traditionally arranged in partnership with SASRIA’s reinsurers in the London market.
But with reinsurers losing their appetite for the risk associated with this type of facility following the July 2021 riots, Sasria will no longer offer cover for Excess of Loss effective 01 April 2022 on new policies (except where terms have already been requested from Sasria and quotations provided – and then cover will be granted with an expiry date of no later than midnight on 31 March 2023).
Their primary products (where limits are within the R500m Loss Limit) remain unchanged. Insurers and Brokers will communicate these changes to you in the very near future.
Cybercrime
This evolving risk has been a hot topic since 2016/2017. Considering the data breach at TransUnion last week and a myriad of other breaches in the last year, the reality is that it’s not going to go away. In fact, according to the Allianz Risk Barometer for 2021, cybercrime tops the list of concerns for South African companies (placing ahead of business interruption and critical infrastructure blackouts). Notably, this has been the case since 2019.
And don’t think you are too small to escape the notice of cyber criminals. The pandemic forced many operations online, placing all companies (even yours) at greater risk of hacking and other related crimes. And the tourism industry, where almost all interactions take place online, is especially vulnerable. Research globally and locally proved that SMEs are the easiest and most targeted sector.
It’s a global problem. Allianz Risk Barometer reports that cyber risk was considered the greatest risk by all respondents in the 2022 survey, pushed to the top by a series of ransomware attacks and challenges that have arisen as digitalisation gains momentum and workforces continue to operate remotely. It’s an interesting development, as this threat ranked behind business interruption and the pandemic in 2021 – but it’s not surprising, given that cybercrime is reported to have cost businesses across the globe between $1 trillion and $6 trillion last year alone.
Between international factors out of our control, an ongoing pandemic (with China imposing more stay-at-home orders this week as they tackle their latest Covid wave), and local pressures, today’s risks can feel overwhelming. It’s important to have a serious deep dive with your broker about any of your concerns – and to ensure that you know exactly what you’re covered for (and what you’re not) should things go wrong.
This topic (and a whole lot more) was covered in a SATIB webinar on 31 March. You can access a recording of the video here.
