Providing clarity in what seems to be a very dark situation!

Amidst the continuous power outages and the current uncertainty and speculation surrounding the possibility of grid failure, perhaps the only thing we can do is ensure that we are well-informed.

This is especially pertinent when it comes to understanding what cover policyholders have with regard to loadshedding and grid failure. It is therefore imperative that both individuals and businesses remain up to date with industry changes in the insurance sector.

South African insurance companies add exclusion for total Eskom grid collapse

Over the last year, South Africa has seen unprecedented levels of loadshedding and growing pressure to the electricity grid. As a result, we are seeing the majority of insurers updating policy wordings and covers to confirm that losses due to grid failure are not covered.

It was never intended for short term insurance policies to cover grid failure. The South African insurance industry faces a dilemma that has prompted the introduction of exclusionary clauses exempting insurers from paying out claims arising from an electricity grid failure. This decision was made after reinsurers specified that they would not provide insurance coverage in the event of grid failure.

Santam implemented a general electricity grid failure exclusion on all policies from 1 April 2023. Attie Blaauw, Santam’s head of personal lines underwriting, explained, the insurer’s intention with the grid failure exclusion is to provide “absolute clarity” that should such an event happen, the unknown consequences of this and any damages related to such an event are not covered.

Hollard spokesperson, Warwick Bloom, told Moneyweb that “while grid failure remains unlikely, it is unfortunately now a possibility and reinsurers have indicated that they will not provide reinsurance cover in this eventuality.”

Outsurance also told MyBroadband it was reviewing its product wording to ensure there was no ambiguity about the fact that it would discontinue cover in the case of a grid failure. “It is not possible for an insurer to cover a complete grid failure and the associated losses,” Outsurance said. “The accumulation of these losses is not something that can be priced for as part of an insurance product or sufficient capital held to cover such a loss — as such it is an uninsurable loss.”

The growing pressure from reinsurers to limit their exposure to grid failures forced the addition of grid collapse clauses for South African insurers and, in order for these insurance companies to safeguard themselves, they have added exclusionary clauses to their policies.  

Difference between loadshedding and grid failure

It is important to note that there is a significant difference between national grid failure and loadshedding.

A national grid failure is described as the total loss of power on the national network, caused by a fault that affects the distribution of electricity. The three most common causes of grid failure are natural causes, human error and overload.

A grid failure, as a result of overload, occurs when there is more electricity demand on a network than available supply, which loadshedding has helped to avoid for years.

Loadshedding is not the same as a collapse of the grid and is in itself not viewed as an uninsurable event by the industry. In fact, insurers have reported a 250% rise in power-related claims since 2022.

Loadshedding is implemented to lower the possibility of grid failure by balancing supply and demand to keep it stable. Loadshedding is required to protect the grid from collapse when Eskom’s aging and poorly maintained and mostly coal-fed plants can’t meet demand.

Tips to help you reduce your risk of loss due to power surge/grid failure

It is best to unplug your devices when the power has been switched off. After power has been restored to your premises, it should be safe to plug your appliances and devices back in again. In an electricity grid failure or interruption scenario, this is especially important.

Surge arrestors or surge protection devices may provide protection, depending on the type of surge experienced. The following should be considered:

  • Any device should come with a warranty of at least 5 years, for which you should receive an installation certificate.
  • Any device should protect against over voltage, under voltage, multiple strikes and lightning surge.

It is also vitally important that you are clear on the conditions of your policy.

Possibility of grid failure in South Africa

Given the frequency and severity of loadshedding, the change in risk of a potential grid failure cannot be disregarded.

During Cyril Ramaphosa’s State of the Nation Address at the beginning of February 2023, the president declared SA’s energy crisis a national disaster. He also appointed a Minister of Electricity to deal with the current power crises.

In addition, according to an article published by Businesstech on 22 February 2023, the South African Reserve Bank (SARB), through the Financial Sector Contingency Forum (FSCF), is preparing contingencies for a national grid failure.

In late 2022, energy expert Professor Anton Eberhard from the University of Cape Town’s Graduate School of Business said that if Eskom is unable to fuel its diesel open cycle gas turbines continually, it could increase the intentionality of widespread system failure.

Research from the South Africa Insurance Association suggests that if the country experienced grid failure, it would take two to three weeks to get the country back up and running, and the knock-on effects would be substantial.


The country’s power utility has reassured us that it is working hard to protect our electricity grid by balancing supply and demand in a controlled, risk managed manner.

However, grid failure is a very real risk facing our country and the insurance sector. Based on the information provided, the consensus is that national grid failure is an uninsurable event.

To understand your risks and coverage options, be sure to speak to your private broker or risk advisor.