Solutions needed as cover shrinks and the risk of power cuts grows
- Herman Schoeman, MD of Guardrisk

In the wake of recent power cuts that cost businesses in Gauteng millions, there has been much finger pointing in terms of who was to blame for the blackout. But, at the end of the day, no matter what the reasons are, or who's at fault, it seems that black outs are here to stay. South Africa's power problems will certainly not be resolved in the short-term; Eskom and the municipalities are doing what they can, but the reality of the situation is that they are hampered by the massive investment (and lead time) required to right the situation.

The considerable underwriting exposures that insurers could face in the event of power cuts, over a large geographical area for an extended period of time, are making it difficult to get utility cover on business interruption policies. The country's electrical power situation has not gone unnoticed by international insurance markets and already the London market is restricting cover. Businesses that are particularly exposed to this type of risk and that cannot afford to install and run their own massive power generation units may have to start thinking about self insurance options.

Deductibles for utility cover have increased drastically in recent times. Just two years ago cover generally kicked in after power was off for 24 hours; then it rose to 48 hours and now it can be up to seven days before cover applies. From the insured's point of view, the situation is further exacerbated by the fact that, even if the power comes on for just 10 minutes during a black out, a new countdown immediately comes into operation as far as the deductible is concerned.

So, with cover being restricted and deductibles steadily climbing, where do companies turn to fund what is undoubtedly going to be a huge challenge for South African business going forward?

Fortunately, South Africa has a well-developed alternative risk transfer (ART) market, which is more than capable of stepping up to the plate. After all, one of the cornerstones of the ART market's success has been its ability to provide for uninsurable or difficult-to-insure risks. The inherent flexibility of ART vehicles provides the ideal backdrop for risks like business interruption due to power cuts; each company can assess its risk accurately and fund it accordingly.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: +27 11 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: +27 11 615-3309 / +27 83 225 7450