We are all sick and tired of hearing about power outages. Apart from the inconvenience suffered in private homes and at small businesses, these outages result in increasing claims on personal lines and business insurance policies. But how protected are you from damage resulting from Eskom’s repeated power outages? And how much pain will short-term insurers have to take in coming months? Answering these questions is not that easy. Most personal lines insurance policies contain clear exclusions for equipment damage due to power surges. Fortunately for the insured, it is extremely difficult to isolate the cause of these power disruptions, meaning insurers are unlikely to isolate “load shedding’ as the cause of damage to equipment. Personal lines claims will probably go through the roof in coming months. And here’s why…

Personal lines insurers will take a knock

We believe there are two categories of claim that will impact on personal lines insurers. The first is claims for damages to electrical appliances. Insurers have already seen a marked increase in claims for damaged electronic appliances. Modern day fax machines, printers and desktop computers are extremely complicated and don’t react well to power surges. As mentioned earlier, insurers will struggle to refute these claims.

You should, of course, note that there are specific exclusions in your insurance policy relating to damage caused by power surges. Both business and private insurance policy documents usually stipulate preventative measures the insured should take before a claim can be considered. Auto & General, for example, according to the wording in their business policy will exclude damage caused by power surges: “unless a lightning or surge arrester or uninterrupted power supply device… has been installed and was in full operation at the time of the power surge.”

The second possible driver for increased personal lines claims is the increase in burglaries at houses (and businesses) which are left unprotected during blackouts. Let’s face it. There aren’t going to be too many insurers that try to refuse a claim because a house’s burglar alarm or electric fence was rendered void by an Eskom failure. Santam’s head of portfolio management recently reassured Santam policy holders that “alarm systems that failed to respond to a burglary because of power failures, would not affect the claim, as long as the system was in working order before the failure.” She said policyholders should not fear that a claim would be refuted were a burglary to occur during a power failure.

Planned power cuts not usually covered

Businesses who seek compensation for lost income in the wake of Eskom’s power cuts will be in for a rude surprise. Once again we look at the wording included in Auto & General’s business policy: “We will indemnify you if your power or telecommunications supplier terminates their supply due to accidental damage tot heir access lines, for a period of longer than 24 hours and you have to incur additional expense to prevent a loss of turnover/sales/revenue/income.”

The wording above is for additional costs incurred to maintain production (not loss of income); but we’ve included it to highlight the key considerations which appear in many policy wordings. The first is the word “accidental”. If the power utility cuts power intentionally then it is unlikely a claim could be considered. The second phrase we consider is “for a period of longer than 24 hours”. Although there are likely to be many power disruptions lasting longer than this period in coming months, it is highly unlikely any of these interruptions will satisfy the “accidental” pre-requisite.

According to Santam, businesses that are “really reliant on power supply” can obtain Public Utiliites cover. This cover extends the basic cover offered under perils like lightening and fire, to include “mechanical and electrical breakdown which results in the interruption of power supply.” But once again, careful attention should be given to the policy wording. Santam advises that cover applies only after a 24-hour interruption – with some policies stipulating a 72-hour stretch. Santam makes it abundantly clear that “policies exclude deliberate withdrawal of power by the supplier so ‘load shedding’ would not be covered.”

Take proper precautions

So it looks like insurers need not worry too much about claims for loss of income / turnover in the wake of Eskom’s planned power outages. Businesses will have to look to institute claims against the power utility to try and get compensation.

The final word on the matter is that policyholders should contact their insurance broker for full clarity on what events they are covered for. They can then make amendments to the policy based on their specific requirements going forward.

Article provided by: FAnews