Big risks ahead for businesses in South Africa – including riots, blackouts and bad weather

Risks to business in South Africa are changing rapidly, and it’s keeping insurers awake at night, says Lizo Mnguni, spokesperson for Old Mutual Insure.

Such risks are likely to impact the insured during 2023 and significantly affect those that do not have any sort of insurance.

Mnguni said that the following risks are those that can be expected to cause increased insurance risks in 2023:

Load shedding

“While everyone has come to accept the instability of the national grid, reports are suggesting that load shedding is likely to be a guaranteed event for the next two years. In this scenario, we are in for a bumpy ride,” said Mnguni.

Mnguni said that Old Mutual Insure had noticed a significant increase in claims, especially power surges claims, given the frequency of outages.

“Since 2018, the number of electronic equipment, burst geysers, and power surge claims have risen by 93%,” he said.

“Power surge claims are increasingly becoming difficult to insure. Insurance companies are in the business of managing risk, and when the frequency and severity of claims increase, it can impact the availability and affordability of insurance coverage.”

Policyholders are now being encouraged to take preventative steps to protect equipment.

By taking proactive measures to protect their electrical equipment, policyholders can not only reduce their risk of damage from power surges but also help to maintain the availability and affordability of insurance coverage, he said.

Climate change and weather

Weather risks are making it more important that insurance coverage is maintained, said Mnguni.

He said that we are currently in a prolonged La Niña cycle, which is wreaking havoc on the country.

“We have seen the effects of the Johannesburg floods in late 2022, brought on by La Niña, and of course, the biggest catastrophic event of 2022 – and in history – the KwaZulu-Natal floods.”

Recent data from Old Mutual Insure showed that the average annual CAT (catastrophe) claims in the last ten years between 2012 and 2022 are ten times higher than they were between 2000 and 2011.

He said that policyholders may have previously thought that they don’t need specific insurance because the infrastructure surrounding their property is good, with minimal risks, but this is also changing.

Economic climate

Mnguni said that higher levels of inflation will likely be around until early 2023 before tapering off in the second half of next year – making it more important for companies in the country to be insured.

For example, Old Mutual Insure data suggests that used car prices have risen by between 8% and 14% in the past two years, but the average cost per claim has also increased significantly.

The company claims inflation has been on an upward trend since 2021, and this continued in 2022, he said.

Civil unrest

“There is a greater risk of civil unrest in 2023 as opposed to 2022, especially around the instability of the grid. We are keeping our eye on this,” says Mnguni, recalling the unprecedented riots of 2021.

He reminds policyholders that if they experience damage to their properties because of civil unrest, it would be covered under SASRIA.

“Most people have this cover simply by having an insurance policy. So, if you have buildings or contents insurance, as well as motor insurance, you will almost always have SASRIA cover in place.”

Read: How middle-class South Africans are trying to escape load shedding