Business survival in the age of state infrastructure deterioration

Johannesburg - The latest Allianz Risk Barometer report highlights the top risks confronting businesses in 2024, with the breakdown of critical infrastructure and blackouts or system failures emerging as the top concerns for businesses in South Africa for the second consecutive year.

Kallie Cilliers, Director of Commercial Risk Services at IntegriSure Brokers, emphasises the growing importance of insurance brokers as essential partners in managing and mitigating business risks. Beyond traditional insurance products, brokers are now playing an increasingly critical role in procuring alternative risk management solutions aimed at preventing losses. One such example is the adoption of telematics among fleet owners and companies operating numerous vehicles daily on the roads.

By analysing data such as patterns of sudden braking or swerving, indicative of encounters with road hazards such as potholes, fleet owners and companies can identify high-risk routes or areas afflicted by road maintenance issues. This enables them to implement proactive measures, such as route adjustments or advocacy efforts for road repairs with local authorities, in order mitigate potential risks effectively.

A recent assessment by the South African Development Community (SADC) reveals that South Africa needs R7 220 billion for financing new infrastructure by 2040 as part of the fifteen year National Infrastructural Plan (NIP), translating into almost R500 billion per year. The main focus areas of the project include priority sectors such as logistics, water and sanitation, energy, information and communications, and transport.

Head of Infrastructure South Africa (ISA), Mameetsa Masemola stressed that the participation of the private sector is key to the delivery of the infrastructure projects. She added that government is paving the way in order to facilitate the quick and seamless establishment of public-private partnerships in order to achieve the government’s goal of securing two-thirds of the NIP funding from the private sector. 

The ongoing port crisis, which has resulted in major delays caused by congestion and poor infrastructure, highlights the urgency of public-private partnerships. According to the South African Association of Freight Forwarders (SAAFF), port delays exacted a daily toll of R98 million on the nation's economy, impeding the movement of goods valued at approximately R7 billion. In December of last year, Ford South Africa President, Neale Hill, indicated that Ford had to fly freight in due to port backlogs which had a huge financial impact. Related and directly impacting insurance clients, is the availability of parts for repairs to damaged goods and vehicles. “We are seeing an emerging trend of clients experiencing delays in repairs to vital items, affecting their daily operations which in turn has a direct negative impact on their business,” says Cilliers.  

The persistent threat of power outages and infrastructure breakdowns poses significant challenges to businesses, disrupting supply chains and exerting a ripple effect on the overall economy. In November 2023, Nova Economics estimated that load shedding had cost the South African economy almost R225 billion from the first quarter of 2020 and the first quarter of 2023, detracting a cumulative 15% points from GDP growth.

The challenges we are facing locally are however not unique to South Africa and we should look to other countries where business have successfully found solutions to address similar challenges. For instance, Cemex, a global leader in building materials, has optimised its supply chain in countries like Colombia and Brazil by investing in alternate transportation routes and leveraging technology. They also advocate for infrastructure improvements in the regions they operate. Similarly, Siemens addresses infrastructure challenges in Europe by offering smart grid technologies for efficient electricity distribution and advanced signalling systems for railways, enhancing safety and reliability.

Cilliers outlines some strategies that businesses can implement to strengthen their resilience and ensure continuity, while highlighting the ways their insurance broker can provide support in this regard:

1. Regular Insurance Cover Review: Businesses should routinely assess their insurance policies in collaboration with their brokers to identify exclusions such as grid failure. They should also explore alternative risk mitigation strategies to minimise potential losses stemming from infrastructure failures.
2. Infrastructure Assessment: Conducting regular evaluations of surrounding infrastructure to identify vulnerabilities is essential. This includes evaluating the condition of roads, bridges, public transport, utilities, and other critical infrastructure components. Identifying potential risks and weaknesses will enable brokers to source appropriate cover and other risk management products to allow businesses to mitigate these risks.
3. Business Continuity Planning: Developing comprehensive plans to sustain operations in the event of potential infrastructure failures. These plans could include strategies for maintaining operations during disruptions, such as alternative transportation routes, backup power sources, and remote work arrangements. It is of the utmost importance that businesses include comprehensive business interruption cover in this strategy to ensure that they can replace any lost business income. Sharing these continuity plans with your broker is essential for evaluating any potential cover gaps should such plans need to be implemented.
4. Investment in Resilient Infrastructure: Businesses and insurers can work with local authorities and community organisations to advocate for investments in resilient infrastructure. This may involve supporting infrastructure improvement projects or participating in public-private partnerships to enhance the resilience of critical infrastructure systems.
5. Communication and Collaboration: Establishing healthy communication channels with relevant stakeholders, including government agencies, emergency responders, and neighbouring businesses, is essential for coordinating responses to infrastructure-related risks. Collaborating with these partners allows businesses to share information, resources, and best practices for mitigating risks and responding effectively to possible disruptions. Furthermore this allows insurers to underwrite risks more accurately and to drive innovation in product enhancements aimed at safeguarding businesses and the economy.

“By embracing strategic risk assessment planning with their insurance brokers, businesses can strengthen their preparedness and resilience associated with deteriorating state infrastructures, safeguarding against potential disruptions and ensuring sustained operations,” concludes Cilliers.