With trade already heavily challenged by the COVID-19 pandemic, the recent wave of riots, looting and destruction of businesses in Gauteng and KwaZulu-Natal has exponentially exacerbated matters, presenting a tipping point for many businesses as to whether they survive or not. The violent and destructive protest action is not, however, unique to South Arica with Aon’s 2021 Risk Maps finding that persistent political instability and unrest is slowing global economic rebound in the face of the ongoing pandemic.
- 60% of countries globally were exposed to some form of civil unrest in 2021.
- Political unrest increased due to rising emerging market inflation and the widening wealth gap.
- Increased global unrest is likely in 2022 as mass vaccinations and an easing of restrictions converge with the COVID-19 pandemic’s accumulated economic and political impact.
According to Sasria SOC Ltd’s 2020 Integrated Financial Report, the insurer paid net insurance claims of close to R1.6 billion in 2019 and R991 million in 2020, while the recent riots and looting caused damages worth R25 billion. Disruptions and malicious property damages of this magnitude have a huge negative impact on the economy, specifically the country’s possible foreign investment prospects.
Aon South Africa says it’s crucial for risk managers, business leaders and consumers to review their insurance programmes and ensure that they have cover for loss or damage caused by protests, riots, strikes, civil commotion and public disorder. Sasria SOC Ltd offers insurance against such risks in terms of various Sasria products in accordance with the Public Finance Management Act No 1 of 1999. Using local insurance companies as its agents, Sasria SOC Ltd offers riot, strike and civil commotion insurance in respect of property damage, business interruption, money, goods in transit, motor and construction risks.
Implications for individuals and businesses
Individual consumers and commercial enterprises of all sizes could find themselves severely out of pocket if their mobile and immobile property are damaged during a violent protest. In most cases, property and vehicles are bank-financed. Where such property is lost or damaged and the owner does not have Sasria insurance, they remain liable for bank loan repayments in addition to the cost of the damages. Purchasing Sasria is therefore a personal and/or business imperative.
What about business interruption?
For commercial clients, Sasria also offers insurance for business interruption (BI). Such insurance is limited to gross profit, working expenses or standing charges and net profit. Sasria BI insurance does not extend to include the traditional contingent business interruption covers such as loss of income following damage to premises of customers and suppliers, and to the supply of public utilities like water and electricity.
Implications for multinationals with local SA operations
Sasria offers cover up to a limit of R500 million for most classes of risk subject to predefined premium rates, however, cover of up to R1 billion is available on application. For large corporates and multinational organisations participating in global property programmes, these limits may be insufficient and may require additional cover in the form of a ‘riot wrap’ policy. The riot wrap provides additional coverage for loss of income, contingent business interruption and material damage (where necessary) in excess of Sasria limits. The riot wrap cover also provides cover for exclusions of war, civil war and terrorism, which are not covered under Sasria. Essentially, where combined material damages and business interruption values exceed Sasria’s R500 million limit, the riot wrap policy will provide extended coverage in respect of the claim once the underlying Sasria limit (or primary limit) is eroded.
Structuring of global insurance programmes needs specialist broking experience of the relevant tax and insurance regulatory regimes of the country.
“When it comes to cross-border insurance on a global programme, considerations must include whether South African jurisdiction, non-admitted insurance from an unlicensed global provider will cover local riot risks,” explains Victor Shonhiwa, business unit manager – Global Client Network at Aon South Africa.
“If the additional riot wrap insurance is placed outside of SA’s borders as part of a global insurance programme, multinational companies may be exposed to regulatory and tax scrutiny at claims stage if an incident occurs at its local SA operation. If the claim is paid outside of the country to the global parent operation, there could be onerous tax and compliance burdens on a multimillion claim settlement if trying to transfer that money to the SA operation.
“All this will be happening when the local operation is unable to operate in the absence of the financial relief to resume operations,” adds Victor.
“Furthermore, Sasria policies only follow cover under an admitted policy (policy issued by a locally licensed insurer). Multinational companies will not be able to access the primary limit of cover where a policy has been arranged with an unlicensed insurer. Risk managers would be well advised to work with a global and professional brokerage firm who can help them to formulate risk strategies for local risks within a global insurance programme and dovetailing Sasria insurance products to programmes,” advises Victor.
Status quo demands attention on Sasria exposures
It’s essential to consult with a broker or risk advisor to ascertain whether the insurance coverage has been extended to cover Sasria perils. Given the status quo of the last few years and the current events unfolding across the country, it’s an essential if not non-negotiable cover on any insurance policy and risk management programme.