Closed for business — many companies without special insurance won’t survive the looting

Insurance companies will feel the pinch as businesses start to rebuild. Photo: Gallo Images/Sharon Seretlo

Insurance companies will feel the pinch as businesses start to rebuild. Photo: Gallo Images/Sharon Seretlo

Chaos. That’s how the last few days in South African could be described in one word. 

Malls have been set on fire, business looted and jobs lost in three provinces. Since then, we have seen communities band together to try to secure their properties and businesses, as the police and army failed to restore calm. More troops were called in, but it is too late for many.

The damage has been done. People have died, property has been destroyed, goods looted, and services disrupted – all in protest of former President Jacob Zuma’s arrest.

The cost of one week’s protest is likely to run into billions of rands and this will affect everyone in both the long and short term. Petrol and food shortages are already upon us, with some people claiming they are looting because they can’t get food any other way. Vital services, like the Covid-19 vaccination sites, have been shut down. The rand has been hit hard, investor confidence trashed, and more job losses will likely follow.

Many businesses have been forced to close and for some, this may be a permanent thing. Small setups that can’t afford insurance will get no compensation. They will be left to pick up the pieces and start again — if they can.

Read more | We will rebuild – KwaZulu-Natal salon owner devastated after business looted

For those that can afford insurance, some assistance may be forthcoming. But only if they have additional cover with the state-owned insurer Sasria (South African Special Risk Insurance Association).

Sasria is the only short-term insurer that provides coverage for damage caused by special risks such as politically motivated malicious acts, riots, strikes, terrorism and public disorders. The company’s origins date back to the 1976 Soweto uprisings, when the insurance industry began to realise the high risks involved with covering losses from such unrest.

This means that businesses that don’t have additional coverage with Sasria won’t be paid for claims by their insurers. And it could spell the end of many small enterprises that provide jobs and valuable services to communities.

“There are millions of small businesses that don’t buy Sasria cover,” Sasria MD, Cedric Masondo told Business Maverick.

“Most businesses in townships don’t have Sasria cover. Some don’t have any form of insurance and won’t be able to recover from losses or damages.”

Sasria is not obliged to cover all claims just because it is a state-owned company.

“There is a misconception that Sasria has a chequebook that would just pay claims from everybody. That is not true,” Cedric told Fin24.

Even if businesses do have this additional safety net, it is limited. Sasria’s primary cover, or standard policy, insures assets up to R500 million. Its so-called wrap cover for clients wanting to insure high-value assets over this amount offers an additional cover of R1 billion. So even with the highest cover, a business cannot claim for losses above R1.5 billion.

In light of the current unrest, Sasria is now facing massive payouts. Cedric has given an estimated figure of at least R7 billion.

Sasria assured their clients that they are liquid and ready to honour claims as they come in with the expectation of more claims being lodged.

“We take note of the uncertainty around the quantification of the losses or damages that have resulted from the current unrest. At this stage we do not know the full value of Sasria claims as a result of these riots  as most claims have not been reported and most are still being investigated by the Loss Adjusters. We anticipate that in about 2 months’ time, we will have a clearer picture once all claims have been reported and investigations and quantification have been completed,” they said in a statement.

South Africa’s largest short-term insurer, Santam tells Drum it’s concerned about the unrest that’s gripping the country.

“We are particularly saddened by the loss of life. We are also concerned about the destruction of property and its impact on livelihoods. These events could have long-term implications on investor confidence and the cost of insurance,” says head of corporate communications, Thabo Mabaso. 

He confirms that unrest-related claims of this nature are typically covered by Sasria and in order for a client to claim for such events, they should have selected Sasria cover under their insurance policy with their insurer.

“By close of business on 14 July 2021, Santam had registered 21 motor and 167 non-motor Sasria claims. At this stage we are unable to provide a monetary amount for these claims as the loss adjustors must still determine the extent of the loss for each claim. 

“Santam is monitoring the situation closely and engaging with Sasria to ensure that these claims are handled as quickly as possible. Santam Re [its reinvestment arm] has a small participation percentage on the Sasria reinsurance programme but it is too early to quantify any potential exposure of this participation.”

The best thing for affected businesses — and the people and economy of the country as a whole — is for the restoration of law and order as soon as possible.

Cedric told Fin24 Sasria has the funds to pay the claims so far, as long as the rioting and looting doesn’t continue for too long.

“There’s no company that can pay R2 billion every day,” he said.