Viviene Pearson | Service delivery remains significant risk for insurers

South Africa has unfortunately continued to experience load-shedding, with the whole country plunging into the worst power cuts since 2019 in the last week of June. The stage 6 rolling blackouts in the last week have negatively impacted the business fraternity and domestic consumers alike. In my May communique, I spoke about the risk of a total grid failure and how this could impact the business fraternity. I had not envisaged that the whole country would be thrust into stage 6 only a few weeks later, making a stage 7 and 8 potentially even more possible.

The state-owned power utility, Eskom, faced additional challenges to keep the lights on following the heightened levels of industrial action around wage negotiations which collapsed. The risks we still face as a country include a total grid failure, which will have a devastating impact on the economy at large, including the non-life insurance industry.  As an industry, we continue to urge and encourage the business fraternity to explore alternative energy sources to continue to power their businesses. Business sustainability and continuity are of paramount importance to insurers as these have a ripple or domino effect on insurers’ viability and sustainability. 

This brings me to yet another contentious issue, the inadequate risk management processes employed by some state-owned companies and municipalities on infrastructure maintenance (property risks). Over the last decade, South Africans have continued to experience service delivery lapses of varying proportions severely impacting the operations and sustainability of a lot of businesses in their jurisdictions. 

A few months ago, we witnessed the dairy processor, Clover, packing up in Lichtenburg’s Ditsobotla municipality in the North-West and moving to KwaZulu-Natal (KZN) in a bid to dodge potholed roads, power interruptions unrelated to Eskom’s woes and haphazard water supply challenges. In many municipalities, this is further exacerbated by a lack of fire engines and working fire hydrants, something that further increases the risk of a possible total loss of infrastructure or property in case it catches fire. 

All these and more continue to be some of the risks that the South African Insurance Association (SAIA), and its member insurers are grappling with through innovative risk management and mitigating initiatives that aim to bring all relevant stakeholders to the table. In the last year, SAIA has partnered with the Fire Protection Association of SA (FPASA) to conduct risk assessments and potential management exercises regarding infrastructure, and the capabilities of the municipalities around SA to effectively respond to potential risks such as fires.

On a more positive note, SAIA welcomes the decision of the Financial Intelligence Centre (FIC) not to include the non-life insurance industry as Accountable Institutions in terms of the Financial Intelligence Centre Act for now, based on the industry risk assessment that was done by Deloitte on behalf of SAIA, the FIA and SAUMA. This is great news for our industry.

*Ms. Viviene Pearson is the Chief Executive Officer at the South African Insurance Association (SAIA).

*This article was first published in the SAIA June 2022 Bulletin.