Did Sasria underestimate the scale of looting claims?

An article in last Thursday’s Moonstone Monitor made mention of claims by the MD of state-owned Sasria that it had more than sufficient cash reserves to honour claims. He is also quoted as saying: “We won’t go to court or spend money on lawyers to decide if your claim is valid or not. We are not going to define what a ‘riot’ means and reject claims if it falls outside of the riot definition. From our point of view, these are all Sasria-related claims and payments can be made within a week.”

The reference to the courts were possibly made in the light of steps by the insurance industry when faced with business interruption claims resulting from the pandemic. Some serious questions were asked about this cavalier approach to the matter without access to the actual size of the problem, which is ongoing and escalating. Hopefully, the fact that such claims will be filed via the private sector short-term industry will prevent fraudulent claims.

An article in Moneyweb on Friday embroiders on this topic:

“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.”

The article asks whether Sasria will be able to foot the bill, given that the estimated damage is somewhere between R20 and R30 billion. Sasria’s annual report states that it 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.”

A Business Day report notes that short-term insurers are referring claims stemming from the crisis to the SA Special Risks Insurance Association (Sasria), the state-owned insurer set up to provide cover for riots, strikes and acts of public disorder. It says while it is still too soon to estimate the monetary value of insurance claims that will flood in once the unrest subsides, claims are likely to be substantial given the industrial scale of looting and damage to property.

Old Mutual Insure has established a dedicated team to assist clients with unrest-related claims, while Santam and Momentum Insure said they were helping clients direct claims to Sasria. ‘We have negotiated with Sasria to appoint loss adjusters for claim amounts of up to R1m in order to speed up the assessment process,’ Old Mutual Insure spokesperson Christelle Colman said. ‘For claims exceeding R1m, we will facilitate the appointment of loss adjusters with Sasria. The cost of damages resulting from the unrest action is yet to be determined, given that the situation is still unfolding.’

Sasria’s cover is provided on an optional basis when private insurance clients take out policies. Sasria’s Fareedah Benjamin said the insurer will have to rely on feedback from loss adjusters and assessors before settling claims – though she did say the company is not currently refusing claims on the basis that they are not unrest-related.

This essentially repeats the claim made by the CEO quoted above.

A critical aspect in the whole saga is the number of businesses who had actually taken out riot cover. Sums assured are pegged at between R500 000 and R1.5 billion.

A Business Maverick article quotes Sasria managing director Cedric Masondo, as saying: “There are millions of small businesses that don’t buy Sasria cover. Most businesses in townships don’t have Sasria cover. Some don’t have any form of insurance and won’t be able to recover from losses or damages.”

It goes on to say that, although some business owners have Sasria cover, the damages to their operations might cost more than the insurer is willing to pay. For example, a standard Sasria insurance policy pays up to R500-million. If a business owner had the standard Sasria policy (with a maximum payout of R500-million) and incurred damages or losses worth R3-billion, Sasria would not pay the outstanding R2.5-billion.

Another State Owned business bail-out?

In a worst-case scenario, Sasria could find itself up the creek without a paddle, like so many other SOEs, and require a government lifeline to fulfil its obligations. The question is, where will the money come from?

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