The below article, from FA News on 19 January 2022, highlights some very important information regarding Riot insurance cover and the recent riots in South Africa in July 2021. We have shared this article to ensure that all our clients are kept informed with the recent SASRIA claims and premium updates.
Disclaimer:
The below article and its views and opinions are of the FA News and not JVC Insurance Brokers.
Riot insurance cover to soar by up to 1736%
The cost of insuring a heavy commercial vehicle (HCV) against loss or damage due to civil commotion, riots, strikes and terrorism could soar by as much as 1736% as South Africa’s special risks insurer sets about rebuilding its balance sheet after a horrific 2021. This according to Sasria SOC Limited’s 2022 rate renewal schedule, which is likely to go ahead from 1 February 2022 with minimal changes to those published early this year.
The R32 billion knock-out blow
Sasria suffered a R32 billion knock-out blow due to widespread rioting in parts of KwaZulu-Natal and Gauteng in July last year. In its most recent update on the event, Sasria said it had made steady progress toward settling the 14051 claims it has received. But the state-owned insurer had to turn to its only shareholder for help, with government injecting R3.9 billion shortly after the disaster, and allocating another R11 billion during the November 2021 Medium Term Budget Policy Statement. “We would like to extend our gratitude to the National Treasury for the additional R11 billion allocation [that will] significantly contribute towards honouring clients’ claims and recapitalising the organisation,” Sasria wrote at the time.
FA news readers will be close to the events that unfolded in July 2021. Many have family or friends who were affected by the drama, and many who are involved in the insurance and non-life insurance broking industries will have been assisting clients and policyholders with the claims process. Sasria has confirmed that the fire commercial category tops the claims list, followed by claims for loss or damage to heavy commercial vehicles and light commercial vehicles, and finally business interruption.
Slow progress, with good reason
Sasria undertook to pay 80% of all claims by December 2021, and 80% of claims of up to R60 million by the end of March 2022, but has admitted that some claims could take up to 18-months to finalise. Those who have an intimate knowledge of insurance operations will find it hard to level objective criticism at the insurer for the slow progress, because settling high value claims takes time. “While there has been commendable progress, Sasria acknowledges the challenges related to its capacity in the market, such as the internal capacity to manage large losses, overstretched Loss Adjusters, clients’ difficulties in formulating claims and policy interpretation,” said Sasria MD, Cedric Masondo, in his November 2021 communication to the market.
Steps taken to expedite the claims pay-out process included increasing the mandates of selected agent companies, increasing the Sasria staff complement and turning to South Africa’s insurance broker network to assist clients with claims formulation. Agent companies, better known as traditional insurers, were thus “engaged and mandated to facilitate claims of up to R1 million” and had by 16 November already paid over R1.8 billion of the R2.6 billion float advanced by Sasria. Although 85% of the claims received were under the R1 million level, the insurer must also process 2000 claims exceeding R1 million each!
Actions have consequences
Sadly, South Africa’s short-term insurance policyholders are going to have to cough up for the hooliganism of a small sub-set of the population. The massive losses incurred by Sasria last year have thrown the insurer’s underwriting numbers totally out of whack, and the insurer has no choice but to make sweeping changes to the premiums charged on certain classes of business. “The 1 February rate increases have come about to ensure the sustainability of Sasria’s model and to enabled them to retain their good standing as a licensed insurer,” said Barry Taylor, Chairman Non-Life Executive Committee at the Financial Intermediaries Association of Southern Africa (FIA). He added that Sasria had to meet the capital solvency requirements set in the insurance legislation.
Masondo, in his November 2021 update, reiterated that the insurer was committed to rebuilding its financial reserves. “As we seek to future-proof Sasria against similar future incidents, we also aim to be a credible and trusted industry player,” he said, before adding that the insurer’s drive was to have social impact, be efficient and ethical. Apparently the insurer had to obtain approvals from the Financial Sector Conduct Authority, Prudential Authority and National Treasury for the increases, which will no doubt have a significant financial impact on commercial insureds. Fire commercial and heavy commercial vehicles will be hardest hit, in line with the exposures in these respective categories.
The rate sheet circulated by the insurer early 2022 notes that the rate for F2: Fire Commercial will increase from 0.0174% per R1 on cover per annum, to 0.02906%, an increase of 67%. Sasria has, however, acknowledged that the complexity of South Africa’s commercial buildings market requires a further segmentation to allow appropriate pricing for different risk profiles. The above rate will therefore only apply to commercial buildings that do not fall under a newly-created category called F2(O): Fire Commercial Office, specifically for commercial office premises. The F2(O) rate will be 0.02088% per R1 of cover per annum. Comparing two commercial buildings valued at R5 million, with one being a logistics or warehousing premises and the other an office building in a corporate office park, Sasria fire cover would cost R1453 and R1044 per annum, respectively.
Moving goods just got a whole lot pricier
The biggest impact occurs in the commercial vehicle space, with heavy commercial vehicles, defined as trucks with a gross vehicle mass (GVM) exceeding 3500 kilograms, attracting a staggering 1736% increase. Sasria will hike its M8: Heavy Commercial Vehicles rate from 0.01879% per rand per annum to 0.345057%. And that means that Sasria cover on an HCV worth R2 million will increase to R6901.14 per annum for 2022 compared to R375.80 per annum last year. Light commercial vehicles in the M2: Light Commercial Vehicles category will cost 15.5 times more to insure.
Industry stakeholders might disagree about the fairness of this hike, but few will argue that Sasria premiums have been kept artificially low over the past, especially given the rising number of socially- and politically-motivated protests and riots. One need only survey the daily news to learn of another truck being set on fire on the N3 highway, for example. According to Taylor, one must consider the rates increase for commercial vehicles in line with the risks presented to the insurer.
JVC Insurance Brokers Closing Comments
The above article highlights the importance of having SASRIA cover in place and further cements the fact that this cover is not a luxury but very much a necessity for all businesses and individuals in South Africa.
Although SASRIA premiums are increasing and the situation within the industry regarding recent SASRIA claims is still an ongoing issue, our clients can rest assured that we will communicate any changes to their premiums or cover well before any changes are to be implemented. We believe that transparency in our industry is key and we will walk this road with our clients, ensuring that their best interests are kept at the forefront of everything we do.
Please contact your broker or our offices if you have any queries regarding the upcoming SASRIA premium adjustments or if you would like to discuss your policy.