As South Africa approaches higher and harsher levels of load shedding, fears of a national grid collapse are growing.
And this will not only bring life as we know it to a complete standstill, but will lead to unrest, and possibly looting.
There are, of course, two different schools of thought on the issue, one being that the grid will fail, and the other being that it will not.
If it does collapse, however, consumers will be at risk when it comes to their insurance policies as any damage or loss as a result of a grid collapse is not likely to be covered.
“The risk of a total grid failure seems like more of a real possibility and can no longer be considered an unforeseen event, meaning it no longer falls within the definition of an insurance peril,” says Hermanus van der Linde, chief executive of IntegriSure Brokers.
“This has necessitated insurers to subsequently exclude cover.”
For homeowners, Ernest North, co-founder of Naked Insurance, explains that home contents insurance would usually cover against loss or damage to all the items in your home that are not part of the building, such as furniture, appliances, and clothes.
“Cover for consumables differs from insurer to insurer so it’s best to read your policy wording.”
When it comes to electricity grid failure, however, there is no cover for loss or damage caused as a direct result of a grid failure.
“This exclusion applies to consequential losses, such as the deterioration of food or other items.”
He notes that home contents that have been damaged due to a power surge following “normal routine load shedding” are still covered.
As it stands, insurers exclude any losses (not just power surge) that directly stem from the power going out or coming back on during a grid failure.
“We define ‘grid failure’ as an interruption of the electricity supply which affects an entire municipality, province, or country. Most insurers have recently introduced an exclusion for grid failure because of the high risk of significant power surges once the grid is restored.
“Such power surges could cause direct damage to appliances and property on an uninsurable scale. Therefore, damage to your home, car and valuables as a direct result of a power surge following a grid failure is not covered.”
North says it is important to understand the concept of proximate cause – what is the main trigger that caused the loss? If the failure of the grid (or the power surge when it is restored) is the root cause of the damage, you won't be covered. However, if the power failure only increases the chances of the loss, you’re covered.
He gives the following examples to explain further:
- If your house burns down due to a fire caused by a power surge after a grid failure, you’re not covered.
- If your house burns down from a fire caused by lightning, but the firefighters cannot get to your home in time because of the grid failure, you’re covered.
Here are examples of what you will covered against in terms of home security during a grid failure:
- If you are robbed at night, it can be argued that robbers benefitted from the cover of darkness due to lack of power. You’re still covered because the grid failure was not the proximate cause, but only increased the chance of loss.
- If your policy states that your cover is only valid if your alarm is working, your insurer could theoretically reject your claim because the lack of an alarm was caused directly by a grid failure.
North notes that the likelihood of an enormous power surge after a grid failure “is so big” that people will need to unplug their appliances in that scenario. He, therefore, offers the following tips:
- Turn off and unplug all non-crucial electrical appliances and switch off geysers when away from home for long periods of time.
- A surge protector plug can protect sensitive electronics from power surges.
- Switch off and even unplug appliances and devices you aren’t using. It can help save your appliances and electronics when there are power cuts/surges.
- A good insurance policy will include 24/7 emergency assistance, such as sending a plumber if your geyser bursts or you need a locksmith after a robbery.
Although the South African Special Risk Insurance Association (Sasria) recently withdrew circulars announcing that it will no longer provide cover for damage to property caused during riots and protests in the event of an electricity grid collapse, Van der Linde says there are other risks that need to be assessed.
“To manage the risks associated with any incident, including a potential grid collapse, individuals and businesses should take proactive steps and have contingency plans in place to manage any possible disruptions.”