A key aspect of financial management and planning is anticipating risks. Picture: Itumeleng English, Independent Newspapers.
A key aspect of financial management and planning is anticipating risks. It’s prudent to bring to your attention the following risk South Africans face this year: that the general election, scheduled for May 29, does not go peacefully and/or a substantial portion of voters are so unhappy with the outcome that they take to the streets in violent protest.
We need to protect our assets – our homes, businesses, vehicles and other possessions. The risk may not be high, but it is real.
It’s amazing how short our memories are – maybe it’s because we have become experts at putting bad things behind us and trying to move on.
The destructive riots of July 2021, the most expensive in South Africa’s history, are a distant memory. We need to acknowledge the fact that they could happen again and that the security forces may again be unable to exert control.
Obviously, the risk to human life is paramount, but in this article, I will focus on risks to property.
The South African Special Risk Insurance Association (Sasria), a government agency, has traditionally been the sole provider of riot cover in South Africa. The riots of 2021 depleted its reserves, with the government having to chip in an additional R22 billion to cover claims amounting to R32.5bn. In a briefing to the National Council of Provinces' finance committee in October last year, Sasria’s chief executive, Mpumi Tyikwe, said the reserves it had built over 42 years, since 1979, had been decimated in 10 days.
Tyikwe said Sasria had subsequently been forced to increase its premiums and had, by the third quarter last year, rebuilt its reserves to about R12bn. However, this would not be enough to cover another event on the scale of the 2021 riots.
He said Sasria was particularly concerned about the “ticking time bomb” of youth unemployment. “Discontent among the youth has been a significant trigger for mass protests around the world – when the youth decide to change the trajectory of a country, for better or for worse,” he said.
The South African Human Rights Commission (SAHRC) has also expressed concern that the underlying causes behind the 2021 riots have not been sufficiently addressed and we could be facing more of the same.
In a recently published report on the July 2021 unrest, which unfolded in Gauteng and KwaZulu-Natal, it found that organised groups and individuals had “opportunistically used this period as an attempt to upend the rule of law by looting goods and committing acts of violence”.
The report raised serious questions about the competency of the police, security companies and intelligence agencies in identifying problems and responding to the ensuing violence.
The SAHRC report said the underlying reasons for the 2021 riots remain unresolved and would probably result in the recurrence of such violence.
“The socio-economic challenges in South Africa, such as high unemployment rates, poverty, and spatial inequality, provided fertile ground for the unrest to escalate. Addressing these underlying socio-economic issues is crucial to prevent similar incidents in the future,” the SAHRC report said.
In a press release last week, Simon Baker, the executive head of retail at insurance firm Aon South Africa, said a ripple effect of the 2021 riots was a hesitancy on the part of local and international insurance markets to provide cover for this line of business.
(A word on the international insurance market: it is all interconnected, with large global reinsurance companies, which insure the insurers, spreading their risks across multiple countries and jurisdictions.)
“The premiums now payable for riot cover have increased drastically – Sasria premiums increased by 47% as reinsurance costs increased by 600%. Furthermore, Sasria reduced its coverage limits from R1.5bn for assets and business interruption to R500m,” Baker said.
“It’s now more challenging to obtain insurer interest, with many more exclusions and restrictions added to the coverage provided. The bottom line is there has been a big increase in the cost of riot cover for businesses, as well as a reduction in the limits of indemnity,” he said.
“In the past 12 to 18 months, we have seen carriers wanting to advance again in providing riot cover solutions for businesses. But, as we have seen in other countries across the globe, the political outlook can change quickly.
“As South Africa prepares for a potentially volatile election period with the election date announced for May 29, the insurance market could go one of two ways. If the current environment continues and remains steady, with little riot damage up to and beyond the election, we’re likely to see the underwriting regime soften.
“However, if there is a deterioration with riots before or after the election, we’re likely to see some insurers withdraw entirely, or certainly seek even more onerous terms.
“The reality is that underwriters typically become more cautious prior to elections – this is a global trend,” Baker said.
Your personal lines or business insurance policy should include Sasria cover, with additional cover available privately if you need it. Check that you are covered and call your insurer if you are unsure. The premiums may have increased, but it’s worth it.
* Hesse is the former content editor for Personal Finance
PERSONAL FINANCE