S.Africa: Rolling Electricity Blackouts are fueling a 50% surge in insurance claims

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Power surge claims up 50% in the last six months – Discovery Insure

SA insurance companies are starting to talk about far higher anniversary renewals, or providing the same cover for an additional premium: Darryl Grater – executive head of distribution.

By Fifi Peters 11 Jul 2022 22:22

FIFI PETERS: We’re in for more load shedding. I suppose that doesn’t come as a surprise to most of us, with Eskom updating the nation a little earlier today saying it’s still unable to fulfil all the demand expectations being placed on the grid. I can tell you also that the South African President, Cyril Ramaphosa, in his weekly newsletter today wrote about the power situation and said that the government is working on a speedy resolution, and that some of the new proposals to ensure greater intervention at Eskom would be announced sometime this week. But essentially we all need to brace for more power cuts.

We’re going to look at what power cuts have done to claims in the short-term insurance industry. Joining us for that conversation is Darryl Grater, the executive head of distribution at Discovery Insure. Darryl, it’s so good to speak with you. I’m so happy that you are on the Market Update, of course not for the greatest of news, just given Eskom and what it is doing to your business. Can you give us the detail of what has happened in terms of claims since load shedding broke out since we saw Stage 6 for the first time [since] pre-pandemic days.

DARRYL GRATER: Good evening, Fifi. It’s good to chat to you again, and thanks for having me on the show. Indeed it’s been quite an interesting time for insurers overall in the last year. If I just consider how load shedding has impacted us in the insurance market, in 2022 we’ve had over 960 hours of national load shedding and we recently reached Stage 6 with the increased outages. And then with the increased load comes a bigger chance of electrical faults that lead to power surges, overloading, and just a shorting of electrical appliances. In the last six months alone Discovery Insure, which is the company I work for, has seen a rise of over 50% in power-surge claims because of the increased loading frequency and severity. By that, just the frequency, the amount of times that these claims happen, and the increased severity which in insurance terms means additional costs, these claims are costing more than before.

In June this year we received over 300 claims a week just on power-surge claims.

Maybe just some interesting numbers, Fifi – we see three times more surge claims with load shedding under Stage 4 versus no load shedding. Now you can imagine when it reaches Stage 6 it is really exacerbated.

If I consider just contents claims – office contents and home contents claims – power surges are the top three causes of claims. ‘Peril’ – that’s an insurance term for cause of claim. That, among accidental damage and weather and power surges, that’s 75% of our contents claims. So the impact is profound.

FIFI PETERS: Sure. The next question is to where the claims were mainly coming from – individuals, also some offices or small businesses? But it sounds like it’s a combination of the two.

DARRYL GRATER: Absolutely. At Discovery Insure we’ve got a personalised offering which covers domestic clients and their personal households. But indeed we’ve got Discovery Business Insurance, which covers a broad spectrum of businesses in the SME space. I think what’s also important to note at this point is that for consumers, whether they’re business owners or just individuals listening to the call, not all insurance companies cover power surges as standard. There are some companies where you or the broker have to specifically request the cover. And furthermore, even if you have the cover, some insurers charge really, really high excesses – I’m talking over R4 000 just as an excess for a household claim.

Back where I work at Discovery, we cover power surges as standard – obviously [at] different policy levels. Your Purple or High Net Worth plan covers it to sort of full-sum insurance. But then your more premium-sensitive clients would take a lower capped amount for a cheaper premium. And then there are obviously insurance companies offering an additional buy-up. So for an additional premium the customer, whether a business customer or an individual, can buy up to R2.5 million on the business side and obviously to a higher rand value on the personal side.

FIFI PETERS: Darryl, I know you have given us the volumes in terms of how load shedding has impacted your business, but I’m wondering offhand what the value of all these claims is right now, and how much Discovery Insure has been able to pay out so far?

DARRYL GRATER: I won’t comment on the rand value for us specifically, but if you just look at insurance-penetration levels before that, there’s probably a bigger story in terms of South African consumers generally – I’m stereotyping – [who don’t] have the highest insurance penetration in South Africa. More cars are insured than buildings or contents, and only one in three cars is insured in South Africa. So that just gives you a sense [that] not many people have insurance, which sees to a bigger need.

If I just consider the Discovery client profile, most of our clients have supportive policies. So they’ll have their vehicles as well as their assets or their property insured. We’ve got a client base of over 200 000 policies, so you can imagine the impact on our business. And when you consider the insurance market, Fifi, it takes commercial insurance, personal insurance and corporate insurance. The market’s arguably about R140 billion, and a large proportion of that premium goes to property cover. And when you consider [that] surge is now a top-three claim value, we are talking billions of rands.

FIFI PETERS: Sure. So would you say that load shedding is adding to the risk for insurance companies like yourselves of covering your clients, and would you say that, if it continues in this manner, you may have to make some revisions to your premiums to offset the increased cost of insurance?

DARRYL GRATER: Well, if I look at the market, Fifi, there have been insurance companies that have withdrawn surge cover as a standard. So they’ve actually taken away the cover and, if the client wants it, and they want to pay an additional premium. Some insurers like ourselves still embed it up to certain limits. But these interventions are done really to protect the loss ratio of the insurer and to make sure that they remain solvent.

One must also consider the backdrop of insurance over the last year or two. If you consider the floods in KwaZulu-Natal, if you consider just the general fires that have occurred, and then, more importantly, if you consider what’s happening with CPI and inflation, insurance inflation is far higher than CPI, which has been exacerbated by the global supply chain, which is why we talked about **

So with just the shortage of imports linked to the global supply chain, parts and general appliances and everything that an insurer pays for is going up on a higher level. So when you start adding additional causes of claims or perils, like power surges, you’re getting this double whammy because there are more claims costing more. So indeed it’s very topical for insurance companies in the market.

And I think we’ve already started seeing insurance companies in South Africa specifically starting to talk about far higher anniversary renewals, and changes to excess structures and/or limiting cover – providing the same cover for an additional premium.

And that we are seeing globally as well.

FIFI PETERS: Quick tips in terms of minimising the damage from load shedding for your clients?

DARRYL GRATER: I can probably give, let’s say, three, Fifi. Clients should unplug their appliances when the power goes out; power surges generally occur when the power comes back on. It’s always good to invest in a surge protector for the distribution board, which can be installed by obviously a certified electrician with surge-protector plug adapters. And probably, lastly, purchase a power strip with a voltage-surge protector. Clients can protect their appliances by simply plugging them into the power strip.

So these are some readily available interventions that clients can do. And then probably, more importantly, speaking to the broader customer base and population of South Africa out there, get insurance cover [that is] there for you in terms of need – and the need has never been more real than right now, where you just consider the volatility and the risks in the market.

FIFI PETERS: Sure. Darryl, thanks so much for your time. We’ll leave it there. Darryl Grater is executive head of distribution at Discovery Insure.

Source: https://www.moneyweb.co.za/moneyweb-radio/safm-market-update/power-surge-claims-up-50-in-the-last-six-months-discovery-insure/

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