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LOADSHEDDING AND SHORT TERM INSURANCE


LOADSHEDDING AND SHORT TERM INSURANCE
Peter Atkinson, National Technical Portfolio Manager (FIA)
24 March 2015
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State power utility Eskom remains in a state of crisis and has issued a number of Stage 2 load-shedding warnings in recent days. What is the impact of load-shedding on the covers on short term insurance policies?
 
Earlier in the year Eskom communicated that load-shedding would be a feature of the domestic power provision landscape for some time. Their comments were followed by a flood of media releases about the potential impact that this could have on short term insurance policies.
 
Types of damage policyholders may face due to load-shedding
The impact of load-shedding could be felt in various ways, for example:
·         Domestic cover – where electric fences and / or alarm systems could be rendered non-functional (there have been media releases about ‘gangs’ that look out for this kind           of opportunity);
·         Domestic cover – possible deterioration of fridge contents;
·         Domestic cover – damage to electric equipment due to power surges when the power returns; and
·         Commercial cover – as above but also possibly business interruption claims.

 
How do insurers respond to claims following load-shedding losses?
Although strictly speaking load-shedding could be said to be a conscious event rather than an accident (even though it may arise from some kind of accidental event at one of Eskom’s plants) most insurers take a broader view.

Policy wordings differ from one insurer to the next and they need to be carefully checked. In some cases extensions may be able to be arranged, for example for power surges (especially under commercial policies).

Damage to stock in fridges is unlikely to be covered. Most power outages are only for a few hours which should not affect refrigerated stock and policy wording generally has a specified minimum period for which the power needs to be off, usually 12 to 36 hours.

Some insurers have reacted to the occasion by adjusting their policy wording. Others have come out publically stating that while their policy wording may not offer cover they would meet claims in any event, provided it can be shown that the insured took reasonable steps to avoid losses. Circulars from Mutual & Federal and Santam will be attached for further information.
 
 
Next steps
Under the circumstances it would be wise to check with your insurers and UMAs to ensure that you and your clients are properly informed of the consequences of load-shedding induced losses.

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