Insurance has always been a tricky game. It involves a highly intuitive system of risk analysis that the insurance providers are continually evolving as the world around us poses new and different challenges.
Historically, the change in risk has been slower than we are witnessing today. For example, as our CEO, Richard Hood, has said, the COVID-19 pandemic and the ever-increasing frequency of national load-shedding are two significant interruptions to our daily lives and have affected countless business operations. These were not quantifiable risks five to ten years ago and have impacted how all insurance providers structure and restructure their risk products.
We have also picked up on growing concerns that South Africa’s public power supply and other public utility services (such as Water Utilities, Telecommunication Networks, Sewerage Utilities, Waste Disposal etc.) could fail catastrophically, resulting in extended non-delivery of services.
Whilst many of us think of service delivery to our homes as a primary concern, the failure of these services to our business can be disastrous.
At Olea South Africa, previously APIO, we recognise our responsibility to stay abreast of these changes and do our best to keep you informed. Contingent business interruption (CBI) insurance is a product that we help you choose so that you can soften the financial impact of events outside your business’s control.
If we continue to see service delivery degradation, the result would be large-scale losses, which the industry cannot explicitly determine (but is estimated would run into billions of Rands for the insurance industry). The inability to accurately determine the extent of such losses means that the insurance market cannot appropriately price the risk. The systemic consequences of such failures cannot be sustainably insured.
As a result, all insurers have revised the scope and extent of the cover provided under their CBI extensions, of which we think two of the most important are around:
To trigger the cover under these extensions, insurers now require that there is physical damage to these services, per the defined events of the Material Damage Sections (e.g. Fire, Buildings Combined). The mere failure of these Utilities will no longer trigger any Business Interruption cover. The implications of these changes are varied and will impact each business differently.
As your risk manager, we’d love to help you ensure that you are correctly insured under the CBI extensions. Please feel free to request a meeting or a call, and let’s keep you appropriately covered.