The SA Insurance Association (Saia) has backed the R11bn in funding for the SA Special Risks Insurance Association (Sasria) announced in the medium-term budget, saying that unless the state-owned insurer is supported by the government, holders of insurance policies may not get cover for unrest-related events in future.
Sasria — SA’s only insurer of risks such as civil commotion, public disorder, riots and terrorism — has had its financial resources drained by the flood of claims that followed the roughly eight days of looting and violence that swept across parts of the country in July. Finance minister Enoch Godongwana made an R11bn allocation to the beleaguered insurer in his medium-term budget policy statement (MTBPS), presented to parliament on Thursday, to help it cover the costs of settling valid claims related to the unrest.
“The July riots were a huge event for Sasria and it is of utmost importance to the industry and to SA that the government assists them to remain financially sustainable,” Viviene Pearson, CEO of Saia, told Business Day. “Without Sasria the industry won’t be able to provide unrest cover, so it is critical for the country that they be supported.”
Saia says its members, together with Sasria, have so far helped settle more than 10,000 unrest-related claims worth about R11.5bn in the wake of the July looting, which erupted shortly after former president Jacob Zuma was imprisoned for contempt of court. Pearson says there are about 3,000 additional unrest-related claims that are taking longer to process as many of them involve claims for larger amounts above R30m, which typically take longer to settle as the loss adjustment process is more complex.
Sasria provides non-mandatory cover for damages caused by civil unrest or public violence up to a maximum of R500m as an additional levy on standard commercial insurance policies. Holders of private insurance policies can select the level of Sasria-risk cover they require on an optional basis by adding an additional premium onto their insurance bill, with the additional amount varying according to the level of cover they require.
Due to the severe shock of the July unrest, Pearson says it is inevitable that the premiums charged on commercial insurance policies for relevant Sasria-related risks will increase next year as total Sasria claims for the violence and looting are expected to reach about R30bn. The boards of Saia and Sasria have held weekly meetings with representatives from the Treasury, the presidency and even the SA Revenue Service on occasion, ever since the July unrest erupted to chart the way forward in settling claims.
“The total exposure for Sasria from the July rioting and looting seems to be going towards the R30bn mark,” said Pearson. “The result is that certain Sasria rates are going to go up very significantly because of the huge financial exposure they face and the increased risk of providing unrest-related cover in future. Though Sasria premiums will only go up from February 1, 2022, it is going to result in an additional charge on people’s insurance policies.”
The R11bn package announced for Sasria in Thursday’s MTBPS is an additional tranche over and above the R3.9bn in financial support for the state-run insurer that the Treasury announced in early October. Nevertheless, Pearson says Sasria should not be viewed as yet another badly managed state-run entity as its financial track record up until the July riots had been superlative.
“Sasria is very well managed and has been since its inception. In fact this is the first time it has needed to be helped out by its shareholder,” said Pearson. “This is not another state-owned entity (SOE) that is mismanaging its finances. They’ve been an exceptional example of what an SOE can be and also how the public and private sector can work together to provide solutions.”
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