Why South African Insurance Policy Exclusions for Total Grid Failure Are a Good Thing

Insurance policy exclusions for a total grid failure might seem like a bad deal for South African consumers, but senior assistant ombudsman Peter Nkhuna argues that they’re essential for the industry’s survival. Here’s a breakdown of his reasoning:

1. Preventing Industry Collapse: Excluding coverage for grid failure ensures insurers can continue covering other risks. If insurers had to cover total grid failure losses, the industry could collapse, leaving consumers without any coverage.
2. Limited Losses: By excluding total grid failure coverage, consumers still have access to other types of insurance, preventing a total loss of coverage.
3. Reinsurance Backing: Insurers rely on reinsurers for support, but some reinsurers are no longer willing to cover total grid collapse risks, leaving insurers exposed without their backing.
4. Shifting Risks: While most insurers continue to cover load-shedding-related risks, a complete grid collapse is now a “real possibility” that was not previously considered in risk calculations.

Outsurance Joins Grid Collapse Exclusion Trend

Outsurance is the latest insurance company to add grid collapse exclusions to their policies, following the footsteps of Hollard Insurance, Momentum Insure, Santam, and Naked Insurance. The reasons behind this decision include:

• Higher Risk of Blackout: The increase in load shedding has prompted a review of coverage, as the risk of grid failure has grown.
• Unforeseen Event Status: Grid collapse is no longer considered an unforeseen event, which means it falls outside the scope of insurance or reinsurance coverage.
• Sustainability: To remain sustainable and able to assist clients with future claims, Outsurance finds it necessary to exclude grid failure coverage.

Outsurance has given clients a 31-day notice of this change, which takes effect on 1 May 2023.

While it might be disappointing for South African consumers to see total grid failure exclusions in their insurance policies, it’s crucial to remember that these exclusions are necessary to keep the insurance industry afloat. By maintaining a stable industry, consumers can continue to rely on insurers for coverage on other risks, and avoid the catastrophic consequences of an industry collapse.