In a joint virtual meeting, two Portfolio Committees and a Select Committee were briefed by the South African Special Risk Insurance Association (SASRIA) to inform them on insurance available for small and medium enterprises affected by the vandalism, looting, and damage to business infrastructure and goods given the July 2021 civil unrest in the country.
SASRIA is a state-owned entity that provides coverage for damage caused by special risks such as politically motivated malicious acts, riots, strikes, terrorism, and public disorders. It was incorporated as a section 21 company as a legislated monopoly providing short-term insurance that is non-refusable, non-cancellable, and affordable. SASRIA provide special risk insurance to government institutions such as municipalities, hospitals and schools, private organisations and individuals that own assets within the borders of South Africa. SASRIA is currently a financially stable, well-governed and self-funded state-owned entity with a dual mandate.
For the recent civil unrest, initial estimates indicate that the damages could be between R15bn and R20bn for SASRIA, and the total property cost is estimated at over R50bn. SASRIA has initiated a claim with the relevant reinsurance companies. The question has been asked if SASRIA has enough resources to pay these claims. It is the legal obligation of SASRIA to pay out on all valid claims. SASRIA also has reinsurance plans in place that will allow the entity to recover some money. However, the reality is that after the claims of R15bn have been paid out, it would have a significant effect on its reserves that it has built up over years. SASRIA does not have a liquidity problem at the moment, but the company will have to be recapitalised after the claims have been paid for the July riots of 2021. It welcomes the R3.9bn from National Treasury to help pay out the unrest claims of those without SASRIA insurance. Measures have been put in place to ensure that claims below R1 million are fast-tracked. Bigger claims are taking longer due to the nature of the claims and the rebuilding projects.
The Committee appreciated the information presented and the measures implemented to speed up the process of paying out claims especially to small businesses affected by the recent civil unrest. Members raised concern that there is inadequate cover for all businesses in South Africa should an event occur at a much larger scale than the July unrest. Members asked why many small, medium, and micro-enterprises and businesses are not registered for SASRIA insurance, given its low and affordable premium. Members were satisfied that SASRIA is sufficiently solvent to make insurance payments but asked for details on how it will ensure its continued liquidity after all payments have been made for the recent unrest. Members raised a concern about the speed at which SASRIA can assess these multiple urgent insurance claims. Small businesses have already been severely affected by the pandemic and now they have to deal with the consequences of looting as well. Therefore what measures have been implemented by SASRIA to ensure that these claims are dealt with speedily. The Committee requested regular updates on the finalisation of these claims.
Ms V Siwela (ANC), Co-Chairperson, welcomed everyone to a joint meeting of the Portfolio Committees on Small Business Development and on Trade and Industry, and the Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, and Employment and Labour. The purpose of the meeting was to be briefed by the South African Special Risk Insurance Association (SASRIA) on its mandate, function, and operation with an emphasis on small and medium enterprises. She noted that there will be limited attendance by Members of the Portfolio Committee on Trade and Industry as they are engaging with public hearings related to the President’s reservations on the Copyright and the Performers’ Protection Amendment Bills.
She introduced Mr Cedric Masondo (SASRIA Managing Director) and Mr Dondo Mogajane, Deputy Director-General of Public Finance at National Treasury).
Mr M Rayi (ANC, Eastern Cape), Co-Chairperson, noted the urgent call for the meeting about SASRIA in light of the recent civil unrest and looting in the country. The three Committees had conducted an oversight visit to KwaZulu-Natal to assess the extent to which small businesses have been affected by the unrest, destruction of property, and looting. During the oversight visit the Committees heard from small business owners on the intervention expected from government. This meeting will shed light on SASRIA and how it will assist small business that suffered damage in the recent civil unrest. SASRIA will brief them on the programmes available for small and medium enterprises affected by vandalism, looting, and damage to businesses infrastructure in these provinces. It is important that the Committees are informed on the mandate, functions and operations of SASRIA at this time.
Co-Chairperson Siwela agreed and added that the Committees are required to give an urgent oversight report on the civil unrest given the upcoming Parliament debate on this matter. It is important that Parliament’s stance and position on the matter be understood by all South Africans.
SASRIA on its mandate, functions, and operations
Mr Cedric Masondo, SASRIA Managing Director, explained that SASRIA is a public enterprise listed under Schedule 3B of the Public Finance Management Act, as a non-life insurance company that provides coverage for damage caused by special risks such as politically motivated malicious acts, riots, strikes, terrorism, and public disorders. SASRIA provide special risk insurance to government institutions such as municipalities, hospitals, schools, among many others, private organisations and individuals that own assets within the borders of South Africa. SASRIA is a legislated monopoly providing short-term insurance that is non-refusable, non-cancellable, and affordable.
SASRIA began over 40 years ago, after courageous young people shaped the course of history for South Africans through a series of protests known as the Soweto Uprisings of 1976. During this time, the short-term insurance industry decided that it could no longer underwrite losses arising from politically motivated acts of civil disobedience and unrest as the risk was too high and it was difficult, if not impossible, to purchase reinsurance cover. This resulted in the incorporation of SASRIA as a section 21 company under the old Companies Act. Its objectives were the provision of insurance cover to protect assets against certain defined events, primarily politically motivated acts, terrorism, and political riots.
The operational structure of SASRIA comprised a membership network pool that included all registered short-term insurance companies that underwrite the fire peril. Section 6 of the Finance Act of 1978 empowered the then Minister of Finance to enter into a Reinsurance Contract with SASRIA as a Stop Loss Re-insurer. It afforded a monopoly to SASRIA as the only Insurer with authority to underwrite political perils in South Africa. The Reinsurance of Material Damage and Losses Act of 1989 had the same effect as Section 6 of the Finance Act. SASRIA was also exempt from paying tax from the date of incorporation, until 1996 when SASRIA became a tax-paying entity. SASRIA was then converted to a limited company wholly owned by the state, and there was a retraction of the unlimited government guarantee. Financially, SASRIA started with a zero base.
Due to lack of world-wide reinsurance coverage, it was reinsured to a limited extent by the Members of SASRIA. In addition, the stop loss coverage afforded by government gave cover in excess of SASRIA’s reserves and reinsurances in an unlimited amount. Initial rates were agreed with the industry as the risks which SASRIA covers were actuarially considered to be uninsurable. In 1989, the perils were extended to include non-political elements. At the time, the mission statement was to underwrite any perils that the conventional insurance market was unwilling or unable to underwrite. Consequently, the perils of SASRIA were expanded and encapsulated in the Reinsurance of Material Damage and Losses Act 56 of 1989 read in conjunction with the Conversion of SASRIA Act 134 of 1998.
Dual mandate, mission and vision of SASRIA
SASRIA is currently a financially stable, well-governed and self-funded state-owned entity with a dual mandate. The insurance protection solutions are affordable to ensure that our country continues to be an attractive investment destination that delivers economic continuity and social stability to ensure special risks are covered.
As a state-owned entity, SASRIA reports to the Minister of Finance via the National Treasury. SASRIA serve two mandates: focus on research and investigation of any risks that can be considered to be of national interest; driving a positive contribution to transform the financial services industry. This creates a sustainable economic and social environment for South Africans. Its mandate further includes the developing of skills in the financial sector, economic empowerment, transformation, instilling investor confidence, to ensure that jobs are not lost, and investing profits responsibility in infrastructure.
Business model of SASRIA
SASRIA designed its business model using a method that proves its commitment to keeping premiums affordable and accessible to all. This is achieved by entering into agreements with other short-term insurance agencies and brokers in offering special risk solutions on behalf of SASRIA. This means that SASRIA rely on these insurance companies for the operation of day-to-day administration and collection of premiums. The role of SASRIA only comes into effect with a client in the event of the settlement of a claim. SASRIA is financially stable and self-sufficient enough to carry out its mandates. This is a testament to its financial capability to create a positive impact on the South African economy and the lives of ordinary citizens. The business model of SASRIA is founded on the reduction of costs as a non-direct sales channel.
There are 120 employees working for SASRIA that increases temporarily when claims are being dealt with. Insurance companies take care of the administration which allows SASRIA to operate at reduced costs. However, this means that SASRIA’s selling strategy depends on insurance companies. SASRIA fulfils the role in the insurance industry that other insurance companies do not want to cover because the specialised risks are very volatile.
The cover provided by SASRIA is accessible anywhere in South Africa – including rural areas, townships, and metropolitan areas. SASRIA provides portfolios to both individuals and companies. For individuals, SASRIA offers special risk insurance cover for the protection of personal vehicles (including trailers) and residential houses against loss or damage caused in the event of a strike, riot civil commotion, public disorder, or terrorism. For companies, SASRIA offers insurance cover for material damage to tangible assets, cash whilst on a company’s premises or in transit, goods in transit (in South Africa or temporarily in Namibia), vehicles, business interruption, and construction risks in the event of a certain perils.
SASRIA’s rates are on a tariff-basis for its one portfolio range that are available to all clients. In addition, the industries covered by SASRIA includes farming, mining, transportation, events, aviation, factories, retail, and municipalities. The clients of SASRIA include companies, commercial businesses, small and medium enterprises, private individuals, state-owned companies, municipalities, and tertiary institutions.
Impact of July 2021 riots and the rebuilding plan
South Africa experienced an outbreak of violence and deadly civil unrest in KZN and Gauteng. The damages initiated with the burning of trucks at the Mooiriver Toll Plaza on 09 July 2021. The looting of bottle stores and shopping centres started on 11 July 2021, and by the next week the looting and torching of properties in KZN reached the point where numerous major shopping centres were completely looted with many set alight causing extensive damage to property.
Initial estimates indicate that the damages could be between R15bn and R 20bn for SASRIA, and the total property cost is estimated at over R50bn. SASRIA has initiated a claim with its reinsurance companies. The question has been asked if SASRIA has enough resources to pay these claims. It is the legal obligation of SASRIA to pay out on all valid claims. SASRIA has reinsurance plans in place that will allow the entity to recover some money. However, the reality is that after the claims of R15bn have been paid out, it would have a significant effect on the reserves SASRIA has built up over years. SASRIA does not have a liquidity problem at the moment, but the company will have to be recapitalised after the July 2021 claims have been paid out.
SASRIA welcomes the R3.9bn from National Treasury to help pay out claims for the civil unrest. Measures have been put in place to ensure that claims below R1 million are fast-tracked. Bigger claims are taking longer due to the nature of the claims and the rebuilding projects.
Co-Chairperson Siwela thanked SASRIA for the detailed briefing and appreciated the measures to speed up paying out smaller claims to people and companies. She noted that Members will ask questions to get a sense of what will be happening during the difficult period following the unrest.
Mr G Hendricks (Al Jama-ah) complimented SASRIA on the work that it is doing. While the Committees were on their oversight visit, feedback from the communities indicated that they applied for insurance, and it was approved with settlement claims being facilitated. The fast-tracking of the claims is appreciated for small businesses. There are many small businesses in shopping malls that could qualify for SASRIA insurance cover. The Committee appreciates that small businesses are covered. He raised the concern that the civil unrest took place over a small geographical area and has severely burdened the capacity of SASRIA. It would be problematic if the unrest were more widespread and there were more claims for SASRIA, as its reserves would have been inadequate. The low premiums of SASRIA makes it affordable for every type of business to afford, but this also has an impact on its ability to recover from massive claims such as the recent civil unrest. There is not adequate cover for all businesses in South Africa should an event occur at a larger scale.
Mr M Mmoiemang (ANC, North-West) noted that more emphasis should be placed on small business by SASRIA. The devastating nature of the looting for informal traders should be made a priority, as these small businesses would not have SASRIA insurance. He asked if extraordinary measures could be considered or implemented to ensure that the insurance intervention is extended to more small businesses from National Treasury. One concern raised was the threshold consideration. He referred to SASRIA’s policy that claims should be processed within 30 days. Given the magnitude of the events of July 2021, he asked if SASRIA considered extraordinary response times to restore the supply-chain of businesses. The smaller businesses are more at risk than the big corporations given the devastation from the recent civil unrest. He asked how the lessons learned will be implemented in the future to ensure that payment of insurance claims do not involve fraud or corruption. What safety mechanisms are in place for this?
Ms H Boshoff (DA, Mpumalanga) agreed with Mr Mmoiemang that the people subjected to looting and property damage are in a dire financial situation. She asked if there is any way that claimants can be given an extension after the 30 days. Many small businesses have lost everything to the extent that they might not even have the paperwork proving their insurance policies. She asked why many small, medium, and micro-enterprises and businesses are not registered for SASRIA insurance given its low and affordable premium. Are there plans under discussion to reach out and assist small businesses to register for SASRIA? She was satisfied to hear that SASRIA is currently solvent enough to make insurance payments but asked for details on how it will ensure its continued liquidity after all insurance payments have been made for the recent civil unrest.
Mr J de Villiers (DA) thanked SASRIA for the briefing. He asked if SASRIA will cover only the replacement of goods or the loss of infrastructure as well. Will the loss of income for small businesses be covered given that they will only reopen when the building infrastructure has been rebuilt? He raised a concern about the potential speed at which SASRIA can assess the multiple urgent insurance claims. Small businesses have already been severely affected by the COVID-19 pandemic and now they have to deal with looting as well. What measures are implemented by SASRIA to ensure that these claims are dealt with speedily?
Mr F Jacobs (ANC) thanked SASRIA for the briefing. SASRIA is one of the few state-owned enterprises that are profitable. He commended government for having the foresight to have an insurance structure like SASRIA, and the magnitude of work that has gone into it is appreciated. There are concerns if SASRIA will be able to restore its reserves after these insurance payments given the significant extent of the damage caused by the recent civil unrest. He agreed there is a need for extra capacity in SASRIA to ensure that there is a quick turnaround time in the finalisation of these insurance claims. He echoed the concern that there are many small business owners that do not have SASRIA insurance. The recent devastation will affect many people’s livelihoods. What is being done to assist small businesses to register for SASRIA insurance? It is important that the Committee receives regular updates on the progress in finalising claims from the recent unrest.
Ms B Mathulelwa (EFF) was also concerned that there are many small business owners that do not have SASRIA insurance. These smaller businesses are reliant on the bigger businesses to ensure that their smaller businesses are operational. What is being done about this?
Mr D Mthenjane (EFF) commended the three Committees for their oversight work in the places where there was unrest and where small businesses have been affected. He thanked SASRIA for the briefing and asked if it covers natural disasters that could affect businesses.
Co-Chairperson Rayi noted government not insuring its buildings with SASRIA and that some buildings owned by municipalities are used as storage by informal traders. He asked for input from SASRIA on the loss of assets for these small businesses due to the civil unrest.
Co-Chairperson Siwela noted that Members have emphasised the turnaround time for processing the insurance claims. The Committees are proud about the oversight visits to the places where civil unrest affected small businesses. She echoed the request that claimants could be given an extension beyond the 30 days given that people are traumatised and have lost the means to lodge claims on time.
Mr Masondo replied that the 30 day-requirement refers to the time in which claimants should report their claims, but this does not require that claimants be able to prove or even know the extent of the damage. SASRIA can appoint an assessor to help with this and establish the extent of the damage. However, in cases like these, there is a concern about fraudulent or inflated claims, and SASRIA needs to protect its clients and its balance sheet. SASRIA has improved operationally and is following a new system to resolve claims which includes an increase in its staff complement. Some of the insurance companies have indicated that the smaller claims will all be finalised in a few weeks so that the bulk of their capacity can be dedicated to resolving and finalising the bigger claims with the assistance of SASRIA.
Much of the red tape has been removed for claimants to ensure that claims can be finalised timeously. There is expected to be over 10 000 claims from the civil unrest, and it will not be easy to discharge the burden of finalising all these claims. However, SASRIA appointed loss-assessors – despite a shortage of professionals in this industry – to ensure that the claims are dealt with.
SASRIA premiums are very low and affordable. The problem with small businesses not opting for SASRIA insurance is not related to the price of insurance, but rather to financial literacy and accessibility of the products that stems from a lack of information and awareness. Therefore SASRIA has been implementing more aggressive marketing to target small business. In addition, a product is being developed to allow people to access SASRIA insurance without having to go through an insurance company, as is currently the case. SASRIA has three times the capital requirements to operate as a short-term insurance provider.
He noted that SASRIA does not provide for natural disasters. SASRIA does cover business interruption for a short period but only for fixed costs of running a business, meaning that the loss of profit is not covered in its insurance. Anyone can buy a SASRIA policy without having an underlying insurance policy.
Mr Dondo Mogajane, Deputy Director-General: Public Finance at National Treasury, stated that the recent riots and looting has been a lesson about the insurance provided. SASRIA will receive R3.9bn to help pay out claims related to the unrest, R2.3bn will be spent on helping businesses not covered for civil unrest, and a tax incentive will be expanded by R5bn to encourage employers to hire and retain staff.
He agreed with Mr Masondo that the problem with small businesses not opting for SASRIA insurance is not related to the price of the insurance, but rather to financial literacy and accessibility of the products stemming from a lack of information and awareness. There is a need to ensure that small businesses are aware of SASRIA and its benefits.
Funding has been set aside to support small and medium enterprises through measures to support critical infrastructure refurbishment (R 600 million), an industrial loan facility to support manufacturing companies affected by looting targeted at infrastructure fittings on premises and restocking (R 700 million), and the Retail Recovery Support Fund where interest-free loans are given to companies affected by the unrest.
It would have been useful to have the Department of Small Business Development to be a part of the meeting with the Committees. The R 3.9bn from National Treasury is mainly to support those small or medium businesses that are not insured by SASRIA. The Department of Small Business Development also has support packages that can be of assistance to small businesses, but it is crucial that communities are made aware of these. It is up to small businesses to approach the governmental departments and request support. However, he noted the concerns about the criteria for such support packages and the destruction of business documentation during the civil unrest which could impede the process.
Co-Chairperson Siwela thanked SASRIA and Members for the contributions made.
The meeting was adjourned.
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