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Five insurance nightmares

Load shedding currently tops the list of insurance nightmares keeping business owners awake at night. But they are also nightmares which businesses can insure against.

Five insurance risks that every business owner should make sure they are adequately protected against:

Load shedding
Persistent load shedding is the number one insurance nightmare for companies and individuals, because most policies simply do not cover the consequential damages that could arise from a power cut.
The problem is that a power cut is a foreseeable event and insurance is designed for events that are not planned. Load shedding is, unfortunately, predictable and therefore manageable. The onus of risk mitigation therefore lies on the business owner rather than on the insurer.
Ninety percent of claims are not likely to be covered in the event of a power cut, as coverage would generally apply up to a limited amount where power surges or spikes cause damage to equipment, like servers or printers. Still, business interruption insurance is being taken out on the mistaken belief that they are covered for consequential losses, when in fact this type of insurance only covers perilous events such as wind, snow, fire, or an explosion as the underlying cause.
There has been an increase in requests for this type of insurance and we are trying to educate clients that it may not be the solution to load shedding problems.

Political risk
With many companies establishing operations in Africa and other foreign jurisdictions, political risk is another factor to consider. This can range from the loss of a mining or broadcasting licence and related approvals such as water licences or agreements with state transport companies, to inadequate or intentional delay in transportation of the goods etc. Commonly referred to as ‘contractual frustration’, these events are not insured unless specifically negotiated at the inception of the venture.
If these licences are revoked, or even worse, if assets are expropriated, it makes businesses unprofitable to run. Subtle decisions in some jurisdictions can force you out of business unless you have insurance tailored to your specific needs.
Policies like these require an in-depth understanding of the political environment which could be sovereign or regionally based. In order to ensure adequacy of cover, specific ‘trigger factors’ need to be negotiated with Insurers for events that could lead to damage.
Weather-related damages
While certain risks are foreseeable, there is just no certainty when it comes to weather. Rain and hail damage in 2012 led to thousands of claims worth an estimated R1bn, and early indications are hail damage could be significant again this year in the summer rainfall region.
We have already seen some severe storms in the first quarter of 2015; and, while not yet as bad as 2012; there is a major risk of an increase in claims later this year. Hail has been a theme for two years running.
It’s not just hail, however, that poses risks. Many businesses – recently livestock farmers – are faced with weather-related problems that can come in cycles, or be one-off events (like floods), and are increasingly at risk of under-insuring themselves against losses of livestock, produce or other goods and equipment.

Failed exports
Disease is another threat to farmers and can impact income from exports. South Africa is the third-largest citrus exporter in the world, but citrus growers had to halt exports last year after the EU complained that four shipments contained the citrus black spot fungal disease.
Disease is generally excluded from many policies – there would generally have to be specific insurance cover in some cases.

Event management
As South Africa becomes increasingly popular for hosting major events – from music concerts to cycle tours and more – the risk of liability for organisers has increased in tandem. The Midmar Mile organisers, for example, were faced with investigating another tragic death after their event earlier in the year. Pressure mounted after the race for a detailed investigation in to why another swimmer died – the third victim in five years.
Liability from events usually arises from injuries or property damage, explosions, water shortages, power cuts and equipment failure, non-appearance, sickness, mourning and inclement weather.

A deposit paid by an organiser would generally not be a recoverable expense, while an indemnity limit would set a ceiling on the amount of the claim. Coverage is not guaranteed if an alternative arrangement could have been made.

In all the above cases it is often a trade-off between potential losses and how much a business is willing to pay for insurance -and frequently boils down to affordability. Most reputable insurance providers are aware of the risks and try to structure the best possible solutions for individual businesses. It is then their decision how much coverage they take.

Adequate business insurance cover and understanding the reasonable steps an insurer expects a business owner to take in safeguarding their assets can go a long way in alleviating these stresses and ensuring that, should an unforeseeable event occur, business owners have the peace of mind that their claims won’t be repudiated. Regardless of the business’ insurance needs – in these tough economic conditions it is essential for business owners to speak to an advisor to ensure that they have the correct cover in place to avoid significant financial losses.

Bryan Verpoort, Head of Corporate and Business Insurance at Standard Bank

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