Load shedding, business interruption and your insurance

Why load shedding on its own is not an insurable event

Business interruption insurance is not standalone cover. It is triggered by physical damage to insured property. The chain runs: an insured peril damages your premises or plant, that damage stops you trading, and the policy replaces the income you lose while it is repaired.

Load shedding breaks that chain at the first link. Nothing of yours is damaged. The municipality simply stopped supplying electricity, on a published schedule, to everybody in the area. There is no physical loss, so there is nothing for the business interruption section to attach to.

This surprises people, and it should not. It is not an insurer being difficult. It is what the cover has always been for.

What insurance does actually cover

Plenty, as it happens, and this is where most businesses are underinsured rather than uninsured.

1. Power surge damage to equipment

The genuine insurable risk in load shedding is not the outage, it is the switching. Every time supply is restored, voltage spikes travel through the network and destroy electronics: point-of-sale systems, servers, motors, compressors, refrigeration controllers, gate motors, alarm panels.

Most commercial policies include power surge cover, but frequently with a limit set years ago that no longer reflects what a full equipment replacement costs. Check the limit, not just whether the section exists.

2. Deterioration of stock

If you hold refrigerated or frozen stock, deterioration of stock cover pays when the contents of a fridge or freezer spoil after a power failure. This is the section that comes closest to genuinely covering load shedding consequences, and for a restaurant, butchery, spaza, pharmacy or food producer it is essential rather than optional.

Read the conditions carefully though. Some wordings require the failure to last a minimum number of consecutive hours, and some exclude failures the supplier announced in advance, which is precisely what scheduled load shedding is. That second condition is the one that catches people out.

3. Machinery breakdown

Repeated hard shutdowns and restarts are hard on motors, pumps and compressors. Machinery breakdown cover responds to the mechanical or electrical failure itself, and for a manufacturer or workshop it is often the more valuable section.

4. Generator and inverter equipment

If you have invested in a generator, inverter or solar installation, make sure it is actually listed on the policy. We regularly see a R180 000 solar and battery system installed and never declared, which means it is neither insured against theft nor against damage. Batteries in particular are a theft target.

The honest summary

You cannot insure the inconvenience and lost trade of load shedding. You can, and should, insure everything it damages on the way through. For most South African businesses the practical checklist is: adequate power surge limits, deterioration of stock cover if you hold perishables, machinery breakdown if you run plant, and your backup power equipment properly declared and valued.

If you are not certain which of those you currently have, that is answerable in about ten minutes by reading your schedule. Send it to us and we will do it.