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The importance of insurance to SOE’s

Published

2018

Tue

13

Mar

 

By Mr. Langa Sigodi, Business Consultant: Public Sector
Lion of Africa Insurance

State-owned Enterprises (SOEs) play a critical role in the growth and development of South Africa. Running as separate entities that are partially or wholly owned by the state, they combine the efficiencies of private business whilst being driven by a government mandate. They are therefore uniquely placed to drive development and serve the interests of the South African public. Insurance for these SOEs therefore becomes not only a matter of protecting the enterprises themselves from large and unforeseen losses, but is then also an instrument to ensure that public interest remains served even in the face of losses. Losses in the insurance world are broadly defined as injury or damage to property suffered as a result of an insured event.

It is important to view SOEs against the backdrop of the political environment that South Africa has found itself in over the past decade. Increased political instability, increasing unemployment rates and the well documented state capture make the risk of damage to state owned assets due to theft, fraud and legal claims against SOEs higher than at any other time in democratic South Africa. These risks have a direct impact on the ability of SOEs to function effectively – in other words it affects service delivery. Insurance provides solutions to these risks, notwithstanding the obligation of the insured companies to exercise due care and to take reasonable precautions against such losses occurring.

But perhaps more worrying is the increased risk of catastrophic losses in South Africa. In a 2017 report titled “Weather, Risk and Catastrophe Insight” released by Aon plc, a global risk consultancy firm, we see that global losses due to catastrophes was 97% higher than the global average between 2000 and 2016. Particularly noteworthy for South Africa, is that the country is no longer considered a “low catastrophe risk region.” When one considers that insurance paid more than R5 billion following the Knysna fires and Durban floods of 2017, and that such catastrophic losses are predicted to be “the new normal,” our state owned enterprises have a duty to ensure that they are covered for such losses without a significant drain on already stretched state resources. In these 2 catastrophes it was mostly municipalities and personal lines individuals who were affected, but the increased likelihood of such catastrophes occurring means that SOEs are at increased risk of being affected and they need to plan accordingly.

There are, interestingly, a handful of insurers in South Africa who are placed, and indeed have the risk appetite, to insure public sector business. These institutions play a key role in ensuring that the effects of losses, including those that are non-financial, are minimized. Partnering with insurance brokers who are skilled in understanding public sector risks and insurance companies with the capacity and appetite to handle large losses should be one of the primary focuses of any SOE. SOEs simply cannot afford to neglect this important instrument to ensuring their ability to continue to serve the interests of the people of South Africa. 

 
Source: High Pitch Media
 
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