News - South Africans must start thinking about total grid collapse

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South Africans must start thinking about total grid collapse

Source By Myles Illidge
1 year ago

Several South African insurers — including the state-owned Sasria that covers special risks like riots, strikes, and terrorism — are excluding damages related to the possible failure of Eskom’s national grid.

If the grid collapses, GIB Insurance Brokers says it would likely result in a catastrophic event with possible looting and civil unrest, which could lead to severe infrastructure damage across the country.

GIB sales operation consultant Guy Jameson says insurance companies have no choice but to view a total grid failure as an uninsurable risk.

“This decision has arisen as reinsurers have indicated they would not provide coverage in event of a total grid failure,” says Jameson.

“This effectively leaves insurance companies with no option but to consider grid failure as an uninsurable risk.”

The South African Special Risk Insurance Association (Sasria) says it would no longer be liable for any payouts in the event of a total grid failure. This is telling as the insurer covers unique risks like terrorism, riots, and public disorders.

Therefore, GIB says companies must start considering disaster management plans to prevent losses caused in the event of a grid collapse.

According to GIB, a total grid collapse would likely result in widespread looting and unrest. Eskom would likely face challenges in restoring power due to severe infrastructure damage across the country.

“Although the likelihood of a total blackout is low, the consequences of such an incident could be devastating, making it worth preparing for,” says GIB.

“Although a total blackout presents several dangers, the primary threat is the time it takes to bring a system back up from that total collapse with estimates stretching into weeks rather than days.”

In the event of an Eskom grid failure, some major aspects for companies to consider include the eventual failure of telecommunication networks, financial systems, and water and fuel shortages.

“This scenario could see current logistics and supply chains becoming unstable, increasing the potential for fuel shortages,” says Jameson.

“Generators requiring diesel could become less reliable than backup solutions such as solar-powered systems.”

From an IT point-of-view, companies must carry out regular data backups at the best of times, and, according to Jameson, such practices are now more critical than ever.

Although initial commentary from insurance companies has been somewhat ambiguous regarding cover, GIB says there is a definite push to avoid any losses associated with grid failure.

“This raises questions around consequential loss and whether it can be directly associated with a particular claim. If grid failure results in any other public supply being affected (for example, water), then any consequential loss might also not be covered,” says Jameson.

“If a defined event takes place at your premises as a direct result of grid failure (fire, stock deterioration that has caused financial loss to the business), there will be no cover.”

“Should this occur, you need to consider the consequences of this with your insurance advisor so that a well-considered and structured response is in place,” he adds.

While South Africa hasn’t suffered a total grid collapse, GIB said insurers are seeing increased claims for equipment damage caused by load-shedding.

It also said business continuity planning for a grid collapse and load-shedding are very different.

Load-shedding mitigation is generally managed on-premises, with on-site power, water, and other backups to allow a business to keep running.

“However, in the case of a large-scale outage, the same is required but for a greatly extended period and in addition to backups for critical resources that cover tech, telecoms, water supply and logistics,” said GIB.

GIB is not alone in warning companies to begin planning for the unlikely event of a total blackout.

Earlier this year, MyBroadband saw a leaked recording of a US Overseas Security Advisory Council meeting where a US government energy expert advised stakeholders in South Africa to start thinking about their disaster management plans.

They said that although a blackout remains unlikely, the risk has increased due to how unreliable Eskom’s coal fleet has become.

Like GIB, they argued that even though the probability of a blackout is extremely low, the consequences of one would be so devastating that it is worth preparing for.