Navigating insurance minefields in 2020


Navigating insurance minefields in 2020

  • By Indwe Risk Services
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2019 was a difficult year for transporters in terms of political, economic and legislative upheavals in South Africa. Very few operators would have started the new year without bearing the scars of 2019. For those who survived, well done. For those that didn’t, you are not alone.


The purpose of this article, is to identify some of the potential landmines that could impact transport businesses from an insurance point of view, in 2020.


Political riots and strikes


Unprecedented volumes of lawlessness related to the plight of South African truck drivers ravaged the transport industry in 2019. The damages caused by the burning of trucks, trailers and cargo has accumulated to billions of rands. The losses which occurred on South African soil would have been settled by the South African Special Risks Insurance Association (SASRIA). However, due to the wanton criminality of many of these acts, SASRIA initiated the process of redefining the meaning of “political” riots and strike action. This, in turn, led to claims being repudiated by SASRIA, which resulted in these losses finding their way back into the local insurance market. These claims have also given rise to material increases in SASRIA premiums.


There has been an angry, collective response from some of the SADC countries who feel that their citizens and expatriates have been unfairly targeted, attacked, and in some cases, killed. The volatility creates a real threat of South African drivers and trucks being targeted when crossing into these SADC countries. Now, here lies the problem. If policyholders have not extended their policies to include cover for cross-border riots and strikes, then they could find themselves with uninsured losses.


Most insurers are happy to offer this as an additional cover to your policy, for an additional premium.


SASRIA only provides protection for incidents occurring within the borders of South Africa and Namibia. To get the cover extended in other countries, the insurer must be requested by the policyholder to do so. The extension of cover should include the motor policy, as well as the goods in transit (GIT) policy.


Customs duties and VAT on bonded goods


Many transporters carry goods destined for delivery in SADC countries. These goods are carried in a bonded environment and will not attract any local duties and freight, as long as the goods make it to the final destination. In the event that something happens to the goods whilst still in South Africa, and the goods are not cleared with the receiving country’s border authorities, then the prescribed customs duties and VAT become payable to the revenue authorities.


The transporter needs to be aware and deal with two aspects involved in this scenario. Firstly, they should ensure that the GIT insurer accepts that these extra charges form part of the loss. And secondly, that the sum insured is adequate to cover these additional costs.


There is, however, an important bit of legislation that can protect the transporter/agent from being charged for these duties and VAT. Rebate item 412.09 of Schedule 4 to the Customs and Excise Act allows for the claiming of a refund, provided that 1) No compensation has been paid or is due to the owner for the goods, 2) Such loss was not due to negligence or fraud by the person liable for the duties, and 3) The goods did not enter into consumption.


As is the case with most SARS investigations, a letter of intent will be issued to the responsible party claiming the full duties and VAT. It will remain the responsibility of the transporter/agent to prove that a rebate is due to them, based on the item, 412.09.


Administrative Adjudication of Road Traffic Offences Amendment Bill


It is uncertain when the AARTO Act will be implemented, but what is clear, is that when it does, it will have significant ramifications for all transporters operating in South Africa. From an insurance perspective, the biggest threat is the potential exposure to repudiations mainly due to licence validity issues. If a driver has accumulated 12 demerit points for instance, their licence will be suspended for a three-month period. If this driver is involved in an accident, insurers may have the option to walk away from the claim due to non-conformity with the policy terms and conditions.


Making use of sub-contractors will also become a potential problem as there is no way of knowing if their trucks and drivers are in possession of valid licences.


If this legislation ever makes it to the starting gates, the major challenge will be to find a way of efficiently administering the infringement notices. This is necessary to ensure that drivers and trucks with invalid licences are stopped in their tracks before they take to our roads.


I believe that insurance companies will be instrumental in finding solutions to the problems linked to the AARTO Act and providing their clients with the tools to mitigate the risks involved.


At the time of writing, the scheduled date for the implementation of the AARTO Act is 1 July 2020.


Economic conditions


It has become very clear that South Africa is in for a rough economic ride this year. Financial constraints will force businesses to cut costs, which will inevitably put transporters under pressure to reduce their rates. Transporters will, in turn, have to implement cost-saving strategies in their operations to balance the potential of reduced income. Sadly, when cash flows are under pressure, many operators see their insurance policies as a ‘’quick fix’’ for cost-saving challenges. Besides the obvious risks involved with not having adequate cover in place, insurers are drawing the line with policyholders who default on premium payments, in some cases refusing to reinstate policies that are in arrears. This makes it very difficult for brokers to arrange alternative insurance cover.


Tough economic circumstances can also drive transporters to start skimping on their vehicle maintenance schedules. This too, can backfire when an accident takes place. Road worthiness is a strict condition of any motor policy and if an insurer finds a reason to prove otherwise, then the claim may not be entertained. This could have catastrophic consequences on an operator’s business.


Happy New Year to all the transporters out there! I hope 2020 brings new hope, happiness and health to you and your families.


If you would like to discuss any aspect of this article with me, please feel free to contact me. As the appointed insurance partner to the RFA, Indwe is happy to assist any RFA member with insurance-related problems.


Steve Cornelius


Head – Automotive and Transportation at Indwe



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