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THE IMPACT OF LOAD SHEDDING ON INSURANCE Once again load shedding is part of our daily lives and numerous questions have been raised whether our policyholders do indeed have cover in terms of the policy and under which particular section or where they can obtain cover. This document attempts to address these questions. The subject will be discussed with reference to the cover provided in terms of the standard Santam Commercial wording (previously referred to as MMIII) to keep the information user-friendly. Damages or losses can occur in the following ways: a. Damage to of loss of electrical and electronic equipment and machinery as a result of power surges/spikes caused by the supply of electricity being switched on or off; b. Physical loss of, or damage to stock-in-trade due to the interruption of the electrical supply (mostly refrigerated stock); c. Loss of income following the interference or interruption of business as a result of interruptions in the supply of electricity. 1. FIRE SECTION 1.1 1.3 Santam has extended the wording of the Fire section to include R50 000 power surge cover, since 1 March 2013 on Agri policies, since 18 May 2013 on all Commercial, Guesthouse and Tourism policies and it will be effective on all Denti- and Mediplex policies from the 1st of January 2015. Damage to refrigerated stock due to an interruption in power supply can be insured by adding Clauses 2073 and 2074 to the policy. In terms of Clause 2073, Santam provides cover for the loss of or damage to refrigerated stock as a result of the total or partial failure of the public supply of electricity to the insured premises. However, the electricity provider merely withholding electricity is excluded, unless such withholding is caused by damage to the utility. In addition, a 24-hour waiver/exemption (franchise) applies in respect of mechanical, electrical or electronic breakage. Clause 2074 limits the cover in respect of the aforementioned to an agreed-upon amount. In a case where load shedding is applied due to there being insufficient capacity at the electricity generation station, no cover will be in place. In cases where the interruption is a direct result of loss or damage to the property of the electricity generation unit’s property and/or equipment occurring, cover will be provided, subject to the 24-hour exemption period. As soon as supply has been restored after the loss has been incurred, the cover will lapse. It is also important to take note of the reference to a public utility. This cover therefore is not available in respect of insureds who generate their own electricity. If the power surge causes a fire, the fire will be covered in terms of this section. 2. BUILDINGS COMBINED SECTION 2.1 2.2 Santam has extended the wording of the Buildings Combined section to include R50 000 power surge cover, since 1 March 2013 on Agri policies, since 18 May 2013 on all Commercial, Guesthouse and Tourism policies and it will be effective on all Denti- and Mediplex policies from the 1st of January 2015. If the power surge causes a fire, this section will cover the fire. 3. OFFICE CONTENTS SECTION 3.1 Santam has extended the wording of the Office Contents section to include R50 000 power surge cover, since 1 March 2013 on Agri policies, since 18 May 2013 on all Commercial, Guesthouse and Tourism policies and it will be effective on all Denti- and Mediplex policies from the 1st of January 2015. It is Santam’s underwriting policy to cover electronic data processing equipment in terms of the Electronic Equipment section. We define electronic data processing equipment as “electronic apparatus for processing and calculations or controlling functions which are expressible in numeric or logic terms” such as computers, laptop computers and similar equipment. 1.2 3.2 3.3 If the power surge causes a fire, the fire will, however, be covered in terms of this section. 4. BUSINESS INTERRUPTION SECTION 4.1 Business Interruption follows the Fire peril where power surge cover is now included (effective from 1 January 2015 on the Denti- and Mediplex policies). Cover is provided in terms of the following two extensions: 4.2.1 Public utilities – insured perils only 4.2.2 Public utilities – extended cover Both of these extensions are optional and must be requested specifically by the insured or broker. Every individual policy must be underwritten, but as an indication we propose the following rates: 4.2.1.1 0.010% 4.2.1.2 0.020% Naturally, the rates must be loaded for occupations that have a greater dependency on electrical supply, such as restaurants, cinemas, theatres as well as area where load shedding is likely to occur more frequently. 4.2 4.2.1 Public utilities – insured perils only Provide cover for the interruption or interference of business due to physical damage to the equipment of power stations, sub-stations and transmission networks caused by a peril as defined in terms of the Fire Section. 4.2.2 Public utilities – extended cover Provides cover for the interruption or interference of business due to the total or partial failure of the public supply of electricity to the insured premises. The mere withholding of electricity by the authorities is, however, excluded unless such withholding is due to damage to the property of said authority. In addition, the 24-hour exemption period (franchise) in respect of mechanical, electrical of electronic breakdown also applies. In the event of load shedding occurring merely as a result of the fact that there is insufficient capacity at the electricity generation unit, no cover will be in place. In cases where the interruption is the direct result of damage to the property and/or equipment of the electricity generation unit, cover will be in place, subject to the 24-hour exemption period. As soon as the supply is reinstated, the cover will lapse. It is also important to pay attention to the reference here to a public utility. This cover therefore, is not available in respect of insureds who generate their own electricity. 4.3 A reduction in turnover and increase in cost of working will be covered if a power surge caused a fire as specifically referred to in 1.3; 2.2 and 3.3. 5. THEFT SECTION 5.1 Policies that require the installation of an alarm stipulate that such alarm be activated and in working condition when the insured premises are unoccupied, or closed for business. Santam has undertaken to indemnify insureds in the event of systems failing to operate as a result of load shedding. The interruption of electricity must be beyond the control of the insured. The same principle will apply in the event that the response company could not react to the alarm’s signal due to an interruption in the supply of electricity. Insureds must, however, ensure that alarms are in working order and are activated under normal circumstances. 5.2 It is important to note that most residential and industrial alarm systems’ back-up batteries can last for at least 6 hours. Therefore, policyholders must ensure that their alarm system’s batteries are tested regularly to ensure that the maximum protection is provided by the system. 6. MONEY SECTION 6.1 Insureds/policies where the alarm requirement applies to the Money section will be treated as set out in 5. Theft. 7. BUSINESS ALL RISKS SECTION 7.1 Cover is provided against the loss of or damage to the insured property irrespective of the cause. Power surges therefore are covered as no specific exclusion applies. 8. ACCIDENTAL DAMAGE SECTION 8.1 Accidental physical loss of or damage to the insured property that is not otherwise insured or for which insurance is not available is covered. The insured will therefore not enjoy cover in respect of damage to electronic equipment caused by a power surge, as cover is available in terms of the Electronic Equipment section. The only exception to this rule is the All Risks section. Items that can also be insured under the All Risks section can also be insured in terms of the Accidental Damage section. It is very important to take note of specific exception (a) pertaining to this section: “any peril excluded or circumstance precluded from any other insurance available from the company at inception hereof or for any excess payable by the insured under such insurance, or for any reduction of amount payable under any claim due to the application of average;” Therefore, if power surges are excluded from any section, this section will also not provide cover against losses arising from such power surges. Santam is an authorised financial services provider (licence number 3416) 8.2 8.3 Machinery and equipment (excluding electronic equipment that is insured in terms of the Electronic Equipment section and machinery insurable in terms of the Machinery Breakdown section) insured in terms of the Fire section, exceeding R50 000, will therefore enjoy cover in terms of this section if the damage is caused by power surges (not occasioned by lightning). 9. ELECTRONIC EQUIPMENT SECTION 9.1 Electronic Equipment is covered against any peril unless it is specifically excluded. Power surges due to any reason are therefore covered. It is company underwriting policy that all data and power lines/ cables that enter of exit the premises be equipped with surge arrestors (such as Clearline’s products). Such surge arrestors reduce and prevent damage to electronic equipment. It is therefore important that brokers ensure that policyholders do indeed protect their equipment with the necessary surge arrestors. 9.2 10. HOMEOWNERS SECTION 10.1 This section provides no cover in respect of power surges, unless they are caused by an insured peril such as lightning or a thunderbolt, or if additional cover is taken out (see 10.2). 10.2 The following limited cover is available and is optional (the insured must select and pay an additional premium for this cover): 10.2.1 Accidental damage to machinery: The following cover is provided: “Sudden and unexpected damage to machinery, used solely for domestic purposes, of swimming pools, jacuzzis, boreholes (excluding windmills), sprinkle irrigation systems, electric gates and garage doors. The machinery must be installed on the premises of the insured buildings.” Therefore, there is cover against losses due to power surges, irrespective of the cause. 10.3 If a power surge causes a fire, the fire will be covered in terms of this section. 11. HOUSEHOLDERS SECTION 11.1 This section provides no cover in respect of power surges unless they are caused by an insured peril such as lightning or a thunderbolt, or if additional cover is taken out (see 11.2 The following limited cover is optional (the insured must select this option and pay an additional premium): 11.2.1 Accidental damage: This extension will provide cover against power surges, irrespective of their cause. 11.3 General extension: Loss of or damage to the contents of fridges and freezers Cover is provided against the accidental spoilage of the contents of fridges and freezers, but with the exclusion of spoilage due to any authority intentionally cutting off the power supply. Instances where the interruption occurs as a direct result of loss or damage to the electricity generating authorities’ property and/or equipment insurance cover will be in place. 11.4 Policies that require the installation of an alarm stipulate that such alarm be activated and in working condition when the insured premises are unoccupied, of closed for business Santam has undertaken to indemnify insureds in the event of systems failing to operate as a result of load shedding. The interruption of electricity must be beyond the control of the insured. The same principle will apply in the event that the response company could not react to the alarm’s signal due to an interruption in the supply of electricity. Insureds must, however, ensure that alarms are in working order and are activated under normal circumstances. 11.5 It is important to note that most residential and industrial alarm systems’ back-up batteries can last for at least 6 hours. Therefore, policyholders must ensure that their alarm systems’ batteries are tested regularly to ensure that the maximum protection is provided by the system. 11.6 If a power surge causes a fire, the fire will be covered in terms of this section. 12. MACHINERY BREAKDOWN SECTION 12.1 This section does provide cover against power surges except if the power surge is caused directly by lightning. 12.2 If a power surge causes a fire, the fire will not be covered in terms of this section; refer to Specific exclusion: “The company shall not be liable for: (3) loss or damage due to fire, direct lightning…” 13. MACHINERY BREAKDOWN BUSINESS INTERRUPTION SECTION 13.1 If an insured is indemnified for the loss of or damage to machinery that has been insured in terms of the Machinery Breakdown section, the reduction in turnover as a result of such loss or damages will be insurable under this section. 14. DETERIORATION OF STOCK SECTION 14.1 Cover is only provided for the deterioration of stock following damage to machinery as insured in terms of the Machinery Breakage section. 15. GENERAL 15.1 Increasing numbers of policyholders are installing generators on their premises to counter the impact of load shedding. All such installations must be done by qualified personnel. Various cases in which installations were not done properly and damages occurred as a result have already been reported. 15.2 The lifespan of electrical and electronic equipment can by influenced by the ill-considered switching on and off of such equipment. Of course, load shedding has the same effect on such equipment. If the equipment is not damaged by a sudden and unexpected identifiable cause, no cover applies. Any mechanical, electrical or electronic breakdown is specifically excluded unless it is the result of an insured peril. Should you have any queries regarding the above, please refer it to the relationship manager or commercial contact centre