How political risk cover protects South African businesses from civil unrest

One has to wonder what might have happened to the South African economy if the countless businesses affected by the widespread civil unrest in 2021 had not had risk protection. When widespread rioting broke out in July, businesses across the country’s key economic hubs of Gauteng and KwaZulu-Natal were openly attacked and looted for over a week.

The resulting over R50 billion in damages left many businesses questioning if they would ever be able to rebuild. The bigger question was whether the economy, already struggling to stay afloat in the aftermath of the pandemic, could recover. Would key businesses cease operations? Would entrepreneurs flee for safer trading climates? Would foreign direct investment dry up and economic growth grind to a halt?

Indeed, in the third quarter of 2021, the economy contracted by 1.7% for the first time after four consecutive quarters of growth, while unemployment remained well above 30%, the highest in the world.

In the 1970s, as South Africa was particularly susceptible to escalating mass public unrest and violent protests, the government at the time established specialised risk coverage in response to increasing political risks. Starting with an initial loss limit of R50 million and undergoing various stages of capital growth and peril expansion, over R32 billion was eventually used to support those affected by the violent mass protests of 2021. Only a few countries worldwide possess this type of cover, with most short-term insurers unwilling to assume this category of risk.

As South Africa remains one of the few African countries providing coverage for specialised risks such as civil unrest, strikes, riots, public disorder, and terrorism, we are still exploring the full extent of this type of risk coverage. With the rapid growth of smart online systems, productivity gains are substantial, but so are online threats like fraud, cyber-attacks, and social engineering.

A major challenge for all insurers in the coming years will be the emerging threat posed by the digital environment and how it intersects with existing volatility. For example, as climate change impacts national crop yields and increasingly severe weather patterns destroy infrastructure, it is the poor who are most affected. They, in turn, are more likely to protest over various issues, from service delivery failures, wage disputes, to politically manufactured grievances.

The Internet then becomes not only a more efficient platform to organise protests effectively, but also a powerful tool for propaganda and disinformation campaigns. Using predictive analytics and signal detection, risk managers must stay ten steps ahead of agitators, terrorists, fraudsters, and hackers.

Data sharing and risk intelligence will need to become increasingly sophisticated with the implementation and enhancement of AI-driven data management and underwriting systems. This aims to maintain a strong record of insurance claims payments, while also expanding holistic support through post-event interventions such as trauma counselling and security services.

Furthermore, given the ongoing threat of climate disaster, Agri cover must be further developed, including enhancements to small, medium, and micro enterprise (SMME) cover. Although this is a significant challenge, it is essential for supporting South Africa as it gradually shifts its economy from one burdened by a large, discontented population to one that provides meaningful livelihoods for all seeking them.

Mpumi Tyikwe, chief executive officer of South African Special Risks Insurance Association (Sasria)