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Insurers prepare for spectre of national electricity grid collapse in SA

Some insurance companies have informed their clients that they will not provide coverage against a national grid collapse.

This follows the preparations made in South Africa due to the electricity crisis in the neighbouring country.

Momentum in Namibia has notified its clients about a new ‘Electricity Grid Failure’ exclusion added to their policies, set to take effect on 1 September.

The circular acknowledges that while Namibia has not experienced load-shedding or breakdowns in the past, there is a realistic exposure due to its partial reliance on imported electricity from South Africa and uncertainty regarding its national grid’s ability to function independently.

“Due to the increasing changes in our risk environment, as well as pressure from reinsurers to limit potential losses arising from the failure of public utilities resulting from any cause, we hereby wish to inform you that Momentum will be implementing an electricity grid failure general exclusion on your policy.”

The circular notes that the company will not cover any loss, physical or financial damage, cost, or expense directly or indirectly caused by, attributable to, arising out of, or resulting from electricity grid failure.

This applies to interruptions or suspensions of electricity supply from any source, for any reason by the national electricity supplier or any of its suppliers, which prevents the national, regional, or municipal electricity supplier from providing power to the insured or any business of the insured.

Additionally, any damage to the house owners’ section or household contents section caused directly or indirectly by electricity grid failure or interruption will not be covered.

“Kindly note that power surge-related claims have significantly increased over the past two years, which has now compelled us to impose an excess of 10% of the claim minimum N$ 2 500 with effect from 1 September.

The excess will apply to all policyholders, including Momentum 5 Star 55 Plus policyholders and/or any zero excess policies,” reads the circular.

Hollard, Outsurance, and Santam have also announced a similar move in South Africa.

Santam, according to the media reports in South Africa, implemented a general electricity grid failure exclusion on all policies from 1 April for all personal lines and commercial lines policies in South Africa and Namibia.

Hollard and Outsurance have already implemented this with their South African clients.

South African insurers now exclude cover for consequential loss, such as business interruption and financial loss, where there has been a total or regional failure of the grid.

According to South African media the South African Insurance Association (SAIA) said physical loss or damage to insured property following a grid failure event can be insured, but it will have its own separate conditions or terms applicable in the policy.

This would be an additional cover that would need to be taken out and discussed with the broker, but not all insurers will provide cover for physical damage due to the grid failure.

To explain why insurers made this decision, it is important to understand that all the insurance companies in South Africa reinsure their risks with large global insurers.

According to the SAIA, global reinsurers regard damage due to any event where there would be a claims rate of 100%, or close to it, as uninsurable.