Given that load-shedding has become a daily occurrence in South Africa, loss and damages to businesses as a result of power outages are no longer insurable events, as the cause of damage is no longer unforeseen.
This is according to George Davis, Head of Construction and Engineering at Risk Benefit Solutions (RBS,) who says that in light of this businesses need to review their risk management policies to ensure that the business is adequately covered to avoid loss or damages.
“One of the primary damages for business – apart from loss of income due to business interruption – is the impact of power surges on machinery when the electricity is suddenly restored. While many businesses have insurance cover in place for power surges, insurers have now had toadapt policy wording to insert a load shedding extension for such power surges, and to what extent this will be covered. This means that businesses may no longer be covered for power surges as they have been in the past, and highlights the need to ensure that regular risk management assessments are conducted.”
“Insurance cover provides reimbursement for damages ofunexpected, accidental acts, and as load shedding is no longer an unpredictable, or accidental event, there can be implications with related insurance claims,” Davis adds.
Davis explains that a power surge refers to a ‘breakdown, electric, electrical and/or mechanical derangement’ or ‘failure in the operation of a piece of equipment due to some mechanical or electrical defect in parts of equipment’.
“A power surge as a result of power being restored after a scheduled load-shedding blackout is therefore not covered by insurance.”
He explains that there are however exceptions to this – for instance if safeguards are installed for equipment and machinery against power surges and electrical power fluctuations – but stresses that businesses need to be revaluating their risk management procedures.
“Load-shedding is here to stay for the foreseeable future, and it continues to remain relatively unstable in that planned outages shift daily between various timeslots, depending on the demand or the technical problems experienced.”
Eskom spokesperson Khulu Phasiwe was also quoted stating that the outages will continue throughout winter: “That is a reality. We have more unplanned outages, than planed outages.”
Recent losses include by companies as a result of power dips and spikes is British American Tobacco, which reportedly suffered a production loss of between 100 to 200 million cigarettes in one week.
“In terms of ‘quick fixes’ for businesses, safeguards against power surges and electrical power fluctuations should be installed for equipment and machinery. Where possible, all electrical appliances should be disconnected when load shedding occurs, or when leaving the premises to avoid damages when the power is restored. Alarm systems should also be fitted with a back-up battery, and businesses should ensure that the system is regularly tested to ensure a sufficient power source as due to the number of rolling blackouts, a battery’s lifespan will be reduced . Should the back-up battery not work, thereby resulting in the alarm not activating and a burglary taking place, no cover will be provided if there is an alarm warranty on the policy.
He says that businesses need to be mitigating risks associated to load shedding through effective, comprehensive risk management procedures. “Risk management is about managing income flowing into a business, and protecting the business should there be a disruption to this income – for whatever the reason. We are advising our clients to review their risk management policies to ensure they are adequately covered for possible risks arising from loss of power – both from a damages and liabilities standpoint,” concludes Davis.