Last year broke the record for load shedding with over 200% more hours of power outages than any other year. Data from the Council for Scientific and Industrial Research (CSIR) shows that Eskom had 90% more blackouts during the first six months of 2022 than the entire 2021.
The CSIR also predicts that during 2023, Eskom will face a shortage of 2 001MW or higher for 49 out of the 52 weeks, with analysts suggesting that load shedding is likely to get far worse before the government’s energy plan starts delivering results. That means we can expect the implementation of Stage 6 to 8 in the coming months. The news comes as Eskom forecasts that load shedding will continue until 2027. It is clear that it’s a matter of adapt or die for individuals and businesses, because load shedding is not going anywhere soon.
A look at claims trends
At Elite, like most other insurers, we have seen a marked increase in the frequency and severity of accidental damage claims under both buildings and contents sections on our portfolio. Furthermore, we have also detected a distinct correlation between the hours of load shedding each year and the frequency of accidental damage claims. This demonstrates that power surge claims increase when there are more severe stages of load shedding. These claims typically refer to power surges or spikes following the restoration of the power supply after load shedding.
But load shedding does not only leave clients vulnerable to power surge losses. We have seen cases where criminals take advantage of load shedding schedules to target properties for theft, burglary, or even worse, armed invasions. Fortunately, at this stage the data does not show a frequency increase in theft claims during periods of load shedding, but it is always advisable that policyholders ensure that their alarm batteries are regularly serviced and replaced when necessary.
There is also an increased risk of vehicle accidents due to dark and unlit roads during load shedding, which can be very dangerous, so extreme caution whilst driving during periods of load shedding at night is important.
The industry responds
With the prospect of prolonged and increased load shedding during 2023 for the foreseeable future, many insurers implemented cover exclusion in the absence of surge protection, limited exposure through compensation limitations, increased excesses or have increased the accidental damage premium allocation in their rating models – or a combination of these.
Most insurers still offer power surge cover, although at higher premiums and subject to limits, increased excesses, and conditions to mitigate their exposure risk. For now, it is fair to say that most clients can still enjoy cover for equipment damaged due to power surges after load shedding, albeit limited and at increased cost. Cover will more than likely be subject to the installation of surge protection. Clients should not therefore expect reward in the form of premium discount for surge protection, but they will be able to be rest assured knowing that they have insurance protection in place.
Both domestic and commercial clients under Elite’s policy have cover for sudden and unforeseen insured events on their traditional policies, including losses incurred during load shedding. But when it comes to damage caused by power surge following restoration of the power supply, it is very important for all policyholders to ensure that they are aware of the conditions, exclusions, limitations, and excesses relating to the specific cover. Whether a client’s electric and electronic devices are damaged by those spikes may very well depend on the protection that is implemented by consumers.
While Elite still allows power surge cover, we are monitoring the situation to ensure that we continue to manage a sustainable business. There is a fine line that needs to be balanced between premium increases to cover the increased frequency of power surge claims, and keeping policyholders adequately insured.
Adversity sparks innovation
The covid-19 pandemic showed us how resilient and adaptable we are. It also gave rise to innovations, and load shedding could be no different, once we make peace with the fact that it is here to stay. Faced with the possibility that traditional insurers may lose their appetite for power surge damage cover, opportunities could arise for specific and innovative value-added products to provide load shedding cover in future.
Surge protective units, lighting solutions, back-up power solutions, solar solutions; all of these are examples of innovations in the power sector. While it is likely that these products would be very expensive, there are big strides being made in technologies that will make these solutions less expensive over time.
For individuals, load shedding is a major inconvenience, but for small businesses, the impact of load shedding can be devastating, with far-reaching results for employees and owners alike. With small businesses key to the government’s plan for economic growth, it is a sad truth that these businesses are vulnerable to load shedding. They experience loss of production, loss of profit, increased vulnerability to theft and burglary and increased damages to electronics.
Businesses could consider being innovative with load-shedding schedules to ensure they can continue to make their targets. Adopt flexibility with employees’ working hours, invest in a good generator or UPS and look for opportunities, such as online selling or promotions. Finally, do what you can to ensure staff morale remains positive.
Load shedding is clearly here to stay. Insurers will continue to scrutinise the data closely to ensure that their portfolios remain profitable. It is important for policyholders and brokers to ensure that they know exactly what is covered and what not, and that all excesses, conditions and limitations are also known.
For personal lines policies, most importantly, ensure that electrical and electronic devices are protected against power surges, preferably with surge protection of the distribution board.
4 load shedding business imperatives
Like theft cover subject to security measures, there are still measures that individuals and businesses can take to protect their electronic devices against power surge damages.
- Know your load shedding schedule
- Unplug electronic devices before the power goes back on after load shedding
- Get surge protection for electronic devices
- Consider investing in alternative energy solutions or backup systems.
