The wave of violent riots and criminal looting that has swamped large parts of Gauteng and KwaZulu-Natal this week demands an equally swift and immediate response from our economic safety net: the dedicated riot and public disorder cover that Sasria provides.

In South Africa, due to our history, commercial and private insurers exclude from cover events motivated by political or social unrest. In its stead, we have a government-owned insurer called the South African Special Risks Insurance Association, or Sasria.

According to Sasria, it is “the only non-life insurer that provides special risk cover to all individuals and businesses that own assets in South Africa, as well as government entities. This is unique cover against risks such as civil commotion, public disorder, strikes, riots and terrorism, making South Africa one of the few countries in the world that provide this insurance”. 

The types of losses being suffered are for the most part losses to assets, buildings, stock, vehicles and losses related to business interruption — more specifically, a loss of earnings. These losses are yet to be quantified but all indications are that they may run into the tens of billions of rands.

Although Sasria believes it has the depth of funds to cover claims, whether it will pay out depends on two key factors: first, what is known as “proximate cause”. In other words, what started the chain of events that led to the loss and was that chain unbroken by any other intervening event. Second, it also depends on how deep Sasria’s reserves and reinsurance run, in comparison to the scale of claims that have been incurred. These are enormous, entirely unprecedented and will last for years to come.

The cover that Sasria provides is widely taken up by insured businesses and individuals but it is not compulsory, and therefore not everyone will be able to look to Sasria to cover their losses.

The aftermath of the violence and looting that we are witnessing on the ground will be war-like in nature, and it might seem obvious that dedicated insurance cover for riots and instability would step in. So why does the issue of proximate cause matter, when the effect is so obviously devastating?

If the proximate cause is deemed to be civil commotion, public disorder or even terrorism — rather than general criminality and lawlessness — then Sasria will be liable. If it’s not, and general criminality and lawlessness are found to be the cause of the damages, destruction and losses, then Sasria will refuse liability and refer claims to general insurers.

My sense is that the industry will — and certainly should — take the former stance in which Sasria covers the losses due to the proximate cause of riot, civil commotion and public disorder. If so, the actual financial impact on the industry and our wider economy could be buffered by the critical lifeline that Sasria offers.

But there are some vital caveats to Sasria’s safety net.

The scale and quantum of the claims are completely unprecedented in the history of South Africa. Although Sasria believes it will have sufficient reserves, the quantum of the losses could soon strip through Sasria’s reserves and any reinsurance. 

According to Sasria’s latest financials, they have R9-billion in assets. We already have seen estimates of losses in excess of R10-billion and this number is climbing. Reinsurers will carry a portion of the burden, but will this be sufficient? Once their own reserves are depleted and the layer of reinsurance is exhausted, Sasria must look to its ultimate shareholder, the government and state coffers, to inject further funds.

Additional hurdles that the industry and cash-strapped businesses will need to overcome in the short term are vast. These include a lack of access to impacted and destroyed sites for a full assessment of current losses due to security concerns and a breakdown in transport infrastructure. This will be compounded by the reality of too many loss events and not enough assessors to cover all events in any reasonable time frame. 

While large, very complex losses will take time to investigate and establish, the long tail of all the losses will make it exceptionally difficult to draw a definite line on the ultimate final loss tally.

Some businesses will also face immense disappointment and outrage when their claims are not paid in full because they were underinsured, and those businesses without Sasria cover will face the heartbreaking reality of having to rebuild from scratch, or not rebuild at all.

It is patently clear, though, that the entire insurance industry needs to band together in this time of crisis to show an effective response. All general insurers should start to mobilise all of their claims-handling capacity immediately. They should work together to assist in the assessment of claims. 

Although Sasria was established to deal with riot, civil commotion and terrorism, its people, processes and capacities have been kept lean because of the historically low volume of claims, and general insurers can expertly fill this gap in the immediate term.

The industry and country cannot afford for Sasria’s bright light of hope to burn out because of a lack of administrative capacity, even once the affordability to cover the quantum of losses has been settled.

High-level discussions between Sasria and representatives of the industry and re-insurance industry must take place immediately to agree on how these claims will be treated and how they will be settled.

We simply cannot afford to wait another moment. DM

Andrew Lee is insurance lead at management consultants IQbusiness.