THE LAST WORD

POST INSURRECTION

The previous article ‘Insurrection cannot be tolerated’ outlined events that took place in Kwa-Zulu Natal and Gauteng between 9th and 18th July 2021 and the impact that the insurrection, associated looting and arson had on the economy and communities impacted upon by these events.

By Peter Bagshawe

Subsequent to the cleanup, the restoration of law-andorder and task of repairing the physical damage to infrastructure, buildings, businesses, and lives has commenced and the major focus in this regard has been on the indemnity available to businesses and individuals who had taken insurance cover through the South African Special Risks Association (Sasria).

Sasria, in its current form, originated out of a Special Risk Insurer Association founded in 1979 to provide insurance for political violence and associated damage, which had become unobtainable via conventional insurance markets. In 1998, under a Constitutional dispensation, Sasria was converted into a public company owned entirely by the State and accordingly becoming a State-Owned Enterprise. Given the starting position of the Association, the role of Sasria (which is a registered Financial Services Provider) is to provide insurance cover in respect of the ambit of risks extracted below:

• Any riot, strike or public disorder or any act or activity which is calculated or directed to bring about a riot, strike or public disorder;

• Any act calculated or directed to overthrow or influence any State or government (including any provincial, local, or tribal authority) with force, or by means of fear, terrorism or violence;

• Any act which is calculated or directed to bring about loss or damage in order to further any political aim, objective, or cause, or to bring about any social or economic change, or in protest action against any State or government (including any provincial, local or tribal authority) or for the purpose of inspiring fear in the public, or any section thereof;

• Any attempt to perform any of the above acts;

• The act of any lawfully established authority in controlling, preventing, suppressing or in any other way, dealing with any of the aforementioned acts or attempted acts; and

• Looting would be covered provided it falls within the policy terms broadly stipulated above.

Historically Sasria – as an SOE – has had a strong balance sheet and has not previously required State funding. Initial estimates of damage indicated by Sasria in mid-July were in the region of R7 billion. This has, however, now increased and Sasria expects claims from the unrest to total between R20 billion and R25 billion. It appears that Sasria, at the time it commenced settling claims, had assets of some R10 billion and reinsurance of some R7 billion. Treasury has given a commitment of R3.9 billion. However, should the total claims come in at the R25 billion estimate, Sasria would need to look at Treasury for an additional injection. Sasria has also indicated that increased amounts of between R5.6 billion and some R7 billion (depending on the level of claims settled) would be needed in order for Sasria to comply with regulatory solvency margins in terms of legislation.

Sasria is not a mandatory cover and is available to a maximum of R500 million as a Primary layer with Excess of Loss cover available to a maximum of R1 billion, with additional layers available on application from Sasria or, with dispensation, from conventional insurance markets. As such Sasria tends to be taken out by larger, more formally structured businesses. Sasria is, however, offered as part of bond, homeowners, motor, and other covers offered via brokers or financial institutions. Sasria cover is not available for purchase directly by the public and may only be purchased through insurers who have been appointed by Sasria as their agents.

Turning away from Saria, accurate figures are not available for the number of businesses impacted by the unrest who did not have Sasria cover in place at the time of loss. Unofficial estimates seem to indicate that some two thirds of the businesses (smaller traders, small businesses, informal traders, and those who elected not to take cover for economic and – in some cases – religious reasons) have no indemnity available to them. This has been recognised by Government who, in addition to the Sasria allocation, have announced an Unrest Support Package to support small businesses not covered by Sasria, with an allocation of R2,3 billion being made available via Treasury with the involvement of the Department of Small Business Development and the Department of Trade, Industry and Competition. Additionally, Government has temporarily reinstated the R350 per month Social Relief of Distress grant until the end of the financial year. The quantum of the Unrest Support Package and its adequacy is open to debate as are the mechanisms through which funding will be made available and the control of the funding.

The timing of the rebuilding of businesses and their ability to withstand the impact of business interruption and associated cash flow impact are widely variable. Those with Sasria cover had the opportunity of taking out business interruption coverage, many would have done so and should be better placed due to this. The availability of business interruption (and the ability of smaller businesses to prove this aspect) in terms of the Unrest Support Package is, from my perspective, an unknown. Irrespective of the availability of claims settlement via either Sasria or the Unrest Support Package the timing of rebuilding of shopping malls, retail space and the resumption of trading will take place, in the event of major physical damage, over several years. What is worth noting is the open question on how much of the infrastructure will be rebuilt. As an example, the Shoprite Group has posted annual results that provide insight. Of the total of 231 stores that were significantly damaged during the unrest, 83 remained closed at the time of the announcement and the Group has decided not to reopen six of the stores damaged. The basis of the decision not to reopen was not made available, however the locations are likely either marginal from a trading perspective or because of the high-risk profile of the location. Added to the impact of the businesses affected by the unrest, estimates are that some 150,000 jobs are at risk in KwaZulu-Natal and in Gauteng 45,000 jobs were lost. Additionally, during the second quarter of 2021, 83,000 jobs were lost in the manufacturing sector, according to Stats SA’s quarterly labour force survey, further impacting on the unemployment rate which currently sits at 32,6% according to government figures.

The impact of the unrest will continue for a lengthy period on both micro and macro levels within the economy. The indemnity provided by Sasria (where available) will smooth the impact to businesses over a wide range of sectors and the projected income to and job creation in the construction sectors should have a positive input economically. Where indemnity is not available there is a potential upside via the Unrest Support Package. However, this does not negate the negative impact on an already weakened South African economy.

PETER BAGSHAWE holds a Bachelor of Law degree from the former University of Rhodesia and a Bachelor of Laws degree from the University of the Witwatersrand.