Water Crisis & Insurance

It is a widely held view, that in the main, the cause of the dire water situation in the Western Cape is a combination of manmade risks, namely, climate change, a sustained influx of people into the area and poor planning by local and national government. Of course, the effect of the drought and how it impacts on our daily lives is what scares one most, which leads to a frequently asked question: Does my insurance policy cover drought?

To answer this question, it is important to touch on the fundamentals of the insurance mechanism.

First and foremost, insurance is essentially a method of spreading the losses of the few, by payment of premiums by a large group, into one common pool (aka as a “pooling system”). Functioning on the principle, that losses paid from this pool are random and only affect a few of the individuals who have paid premiums. The lack of water supply affects us all simultaneously and is a known risk (not sudden and unforeseen), which results in the pooling technique becoming unworkable and unsustainable (for insurers). Ultimately, the responsibility of dealing with the drought in the Western Cape, including the direct and indirect consequences, lies with society and government, rather than your insurance policy. Put another way, drought, water rationing and the withholding of water by authorities are not insurable risks or events and therefore not covered.

So, what to do, if insurance is not the solution? The answer is, awareness and prevention of loss – in a nutshell, risk management.

Chadwicks recommends that each individual or business conduct a risk assessment of all the areas of their home or business that may be impacted by a lack of water supply and take immediate steps to mitigate or avoid loss or damage. In fact, all insurers contractually require you to do so i.e. to always act as if though you don’t have insurance cover and to do everything the reasonable person would do to avoid loss.

These include:

• Switching off all devices that may be damaged due to a lack of water supply e.g. pool pumps, geysers etc.
• Complying with all bylaws, acts and regulations e.g. National Building Regulations, Water bylaws etc.
• Regular testing of Fire Fighting Equipment
• On-going risk assessment

These are extraordinary times, the biggest takeaway being, collective preservation and responsible use of, arguably our most precious resource, water.