Can Sasria honour claims of up to R30bn?

You can sail a 22-foot yacht across the Atlantic by yourself if things go right, but you will struggle to survive if they don’t.

The man holding the helm at the South African Special Risk Insurance Association (Sasria), managing director Cedric Masondo, has just sailed into a huge storm in a boat that is probably too small to reach land without serious damage.

Sasria’s latest annual report creates the impression that the recent unrest, looting and vandalism will create the biggest challenge the association has ever encountered since its establishment in the late 1970s.

The last few years were relatively easy. Sasria paid claims for damage resulting from the odd service delivery protest or wage strike, and – if the annual report is anything to go by – spent the rest of its time on less pressing social issues.

Sasria collected just more than R2.4 billion in premiums during the year to March 2020, a satisfactory increase of 11% compared with the previous year. It paid out fewer claims than in the previous year, with claims decreasing to R992 million compared with nearly R1.6 billion in the 2019 financial year.

This enabled Sasria to spend R113 million on salaries and another nearly R10 million on staff training. It also transferred R43 million to the community by way of socio-economic development.

There was also no pressure on the investment advisors to work too hard: they stuck 71% of the investment portfolio in low-risk cash and near-cash assets, which yielded a low return.

R992m vs R20bn

The R992 million in claims paid out in the 2020 financial year – the 2021 annual report is due soon – is a drop in the ocean compared with the potential claims Sasria is facing now.

The damage by the widespread looting and destruction in KwaZulu-Natal and parts of Gauteng is estimated to be as high as R20 billion or even R30 billion.

The SA Property Owners Association (Sapoa), which represents over 800 organisations in the commercial property sector, with 90% of the nation’s commercial real estate owned by its members, estimates the damage at more than R20 billion.

It says it has collated figures showing that some 800 stores have been looted and/or severely damaged while 100 malls have been either burned down or have suffered significant fire damage. A number of distribution centres in Durban have also been looted, with serious structural damage.

Sapoa president Andrew Konig quoted from estimated figures supplied by the eThekwini Economic Development and Planning Committee, stating that:

• Some R1.5 billion has been lost in stock;
• Property damage exceeds R15 billion;
• Over 50 000 informal traders have lost their livelihoods; and
• Approximately 1.5 million people have lost their potential to earn an income.

There are also some 150 000 jobs at risk.

Konig says the overall result of the past five days of devastation is an estimated loss to GDP upwards of R20 billion.

Sapoa estimates that the repair and reopening of a mall that has been burned down is likely to take at least two years, while those that have suffered less structural damage may still take a couple of months to reopen.

Sasria has publicly estimated the damage at anything from R3 billion to R10 billion. An earlier report quoted Masondo as saying that damage could amount to between R3.5 billion and R7 billion, while he said in a later interview with Reuters that damage could be as high as R10 billion.

Read: Insurance claims from unrest seen at up to R10bn – govt insurer

Coincidently, he also mentioned that Sasria will be able to settle claims of up to R10 billion with its “own balance sheet”.

Masondo later said that damages could be as high as R12 billion.

While it is impossible to tell how much of the damage is covered by insurance and how many policies include Sasria cover, the figures suggest that Sasria might be swamped.

Sasria describes itself as the primary short-term insurer in SA, providing cover against special risks such as civil commotion, public disorder, strikes, riots and terrorism.

It notes in its marketing material that cover is needed as seen by recent increases in service delivery protests, student protests and labour strikes, as well as the increase in international terror incidents.

However, it is unlikely to have expected damages on the scale seen over the last few days.

The annual report states that Sasria has assets under management of R8.5 billion as at the end of March 2020, and disclosed an equity value of R6.9 billion.

Claims of R10 billion would be likely to bankrupt Sasria if it was a traditional private sector insurer.

Reinsurance

The financial statements create the impression that Sasria has inadequate reinsurance cover.

In 2020, it recovered only R592 000 from R992 million paid in claims from reinsurance.

Masondo said in his report to stakeholders that Sasria’s approach is to determine what size of catastrophe it will be able to withstand.

“The worst-case scenarios or catastrophes have been calculated as part of Sasria’s own risk and solvency assessment and therefore our target is set at 230%.

“We are committed to standing behind all South Africans in protecting them from harm in terms of the perils which we are mandated to cover.”

Claims

Masondo was not available to confirm the limit of R500 million applicable to a single claim, but it seems high enough to cover the majority of claims in full if one considers that every shopkeeper in a mall will be able to submit a claim. However, some big malls might be exposed.

Lisa Swaine and Maria Philippides, partners at law firm Webber Wentzel, warn that businesses seeking to recover losses need to act quickly in filing claims to Sasria.

“If Sasria cover is in place, depending on the extent of the cover obtained, your business might be insured against the risk of loss or damage to its tangible assets, goods in transit, money, vehicles, construction works and construction plant and equipment, as well as specific consequential business interruption loss,” say the lawyers.

They list a few important things that affected business owners need to consider:

• Time is of the essence. Your insurance broker must be notified of your claim, if not immediately, as soon as possible, so they can notify your insurers. Sasria must be notified within 30 days of the broker receiving the claim from the insured party.
• Start gathering the evidence. The fact that the entire country has been affected by these acts of vandalism, riots, public disorder and civil commotion does not mean that you can take your claim and loss as a given. You need to prove your claim and that it falls within the cover provided by your Sasria policy. Photographic and video footage evidence of the incidents, if available, must be obtained and preserved.

Santam said that by close of business on Wednesday (July 14), it had received 21 vehicle-related claims and 167 other claims for damage due to the looting and unrest.

“At this stage we are unable to provide a monetary amount for these claims as the loss adjusters must still determine the extent of the loss for each claim,” it said in a statement released late on Thursday afternoon, urging policyholders with Sasria cover to register claims with their intermediaries or directly with Santam as soon as possible.

Sanlam indicated that it is engaging with Sasria to ensure that claims are handled as quickly as possible.

Listen to Fifi Peters’s interview with Sapoa CEO Neil Gopal (or read the transcript here):