/ 8 January 2015

Political risk claims lower in 2014

The effect of the platinum mining strike last year was not as severe as expected.
The effect of the platinum mining strike last year was not as severe as expected.

Sasria, the state-owned company that provides insurance for strikes, saw better times in 2014 despite a five-month work stoppage that brought the platinum sector to its knees.

The number of claims for the 2014 financial year decreased by 32% from 2013, according to the South African Special Risks Insurance Association, which offers insurance cover for political riots, terrorism, strikes and labour disturbances. The severity of the claims also decreased by 15% from the previous year.

“Despite the [2014] platinum strike being so long, it wasn’t as bad as we anticipated,” said Sasria managing director Cedric Masondo.

“There was a lot of media hype around the strike but it wasn’t too violent.”

Although several claims relating to the platinum strike were filed, most related to looting rather than the destruction of property.

“There were lots of incidents of looting, but that’s not as bad as when they burn or destroy property,” said Masondo.

Sasria provides insurance for property damage through disturbances, but does not provide life insurance in the case of individual deaths arising from violent clashes.

The company makes its revenue by selling insurance premiums through a network of authorised intermediaries. Its customers include private and state-owned companies, municipalities and private individuals.

In comparison to last year’s figures, 2013 was a bloodbath for Sasria, which incurred huge strike-related costs and serviced millions of rands worth of claims for property damage.

According to its integrated report, Sasria experienced its highest claims rate ever in 2013, with an increase in claims frequency of 91% and an increase of claims severity of 135% from the year before. According to Masondo, this was mainly because of strikes in the mining and agricultural sectors.

“The [mining] strikes in the year following Marikana were severe,” said Masondo.

Strikes in the agricultural sector, which ultimately led to an increase of the agricultural minimum wage of R105 a day, saw high incidents of property damage.

2013 a year of ‘severe’ strikes
Nevertheless, the numbers reflected in the department of labour’s Industrial Action Report from 2013 show that agriculture contributed to little of the overall labour unrest of that year.

Agriculture experienced only five work stoppages in 2013, whereas manufacturing had 23 work stoppages, mining saw 25 and the community sector a total of 34. Both agriculture and mining also lost significantly fewer days to strikes in 2013 than in 2012.

The number of working days lost in the agricultural sector went down from 123 400 in 2012 to only 64 400 in 2013. The mining industry experienced an even more significant drop: 2 730 000 days were lost in 2012 and a comparatively light 516 000 days in 2013.

The fact that the number of strike incidents and days lost to strikes did not correlate with the extent of payouts required from the insurer reflects the fact that strikes in 2013 were not longer in duration, but more severe in magnitude.

Violent protests
Sasria made a similar observation about service delivery protests in its integrated report.

Claims severity as a result of service delivery protests increased during the past year. While labour strikes and labour unrest have traditionally made up the lion’s share of the company’s claim reserves, service delivery protests have begun to take up an increasing portion of the costs, and are now 30% of Sasria’s total claims figures.

“In the past, the labour strikes would mainly contribute to our overall costs,” said Masondo. “Service delivery protests would cause, for example, a broken windscreen or one or two damaged cars. But now, service delivery protests are also costing [more] money.”

This points towards the fact that service delivery protests are becoming more ­violent, according to Sasria.

The company has also noticed a shift: whereas service demonstrations were traditionally confined to townships, they increasingly took place in metropolitan areas during the past year.

“We are not sure yet whether it’s a trend,” said Masondo.

“Of course, if it is a trend, it’s a concern for us. It’s always worrying when service delivery protests are involved, because it points towards a social problem in the country.”

Loss ratio down; earnings up
Sasria had 1 525 insurance claims in 2014, down from 2 233 in 2013. Its loss ratio (the number of claims paid out for, compared with the number of premiums bought) for the 2014 financial year was 18.3%. This was down 34.3 percentage points from 2013’s loss ratio of 52.6%.

The state-owned company is self-sustaining and paid a dividend of R107-million to its shareholders.

Sasria has also managed to increase its earnings. Net profit before tax increased from R482-million in 2013 to R944-million in 2014.

Masondo attributes a large portion of this to an increase in the number of premiums over the past year. The company has ploughed significant resources into marketing.

But, Masondo admits, the organisation also has the labour environment to thank for an increase in premiums sold.

“When large strikes happen, it creates that awareness. Companies start questioning whether they are adequately covered,” according to Masondo.

“Our marketing efforts supported that awareness.”