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How the Knysna Fire Will Affect Insurers - and the Uninsured

Author: Megan Ellis
Date: 2017-06-16
The Knysna fire was devastating for the affected residents. But how badly will this affect insurance companies - and uninsured residents?
The Knysna fire and Cape Storm proved devastating for thousands of residents, with many homes being destroyed by the blaze. The Western Cape community was quick to respond, with companies and residents donating to an emergency relief fund. Insurers are also expecting an influx of claims for destroyed valuables and property. But this is one of the largest natural disasters in South Africa recently. So how does destruction of this scale affect insurers and ordinary people?

Implications for Insurers

Many insurers have assured that claims will be paid out speedily and without hesitation. However, the sheer volume of claims are sure to affect insurance companies - especially smaller ones.
"With nearly 10 000 residents evacuated and homes, schools, structures, and power and communication lines destroyed, the impact on short-term insurance claims is likely to be substantial," Old Mutual says on their site.
The insurer says that this could result in delays in the claims process. This, however, would impact residents negatively as they would have to dip into their savings. How well smaller insurers will be able to handle the impact of the huge number of claims is in question. Richard Hasson, an analyst at Electus Fund Managers, said in a report that the profit of these companies will be under pressure.
"In a weak economic environment, such as low gross domestic product growth and increasing unemployment, claims typically pick up, which will not be good for them. The recent fires and storms will affect the companies," he said.
Some insurance companies, however, will be able to fall back on reinsurance, according to Business Day. This is essentially insurance for insurers, which can help limit losses following disasters. What has to be kept in mind is that claims will not only be coming from house owners but also business owners. According to the Western Cape government, around 30 tourism establishments were affected by the fires. Even larger insurance companies will see losses, but they will be able to contain them. 
Read More about the Cape Storm below

How Bad is the Damage?

With around 4 000 people displaced as a result of losing their homes, it is only a natural assumption that the cost of the damage is high. But you may not have realised just how high. According to Fin24, Cape Chamber of Commerce president Janine Myburgh said that the damage is set to amount to billions. Initial estimates have been that the damage amounts to up to R4-billion. But Myburgh said that the cost will rise by billions more if you take into account those who are uninsured. Alexander Forbes has already noted claims amounting to around R22-million for the fire. The Herald reported that Outsurance has already seen R200-million in claims. With all that damage, it's no wonder that smaller insurers are set to suffer. But not every resident affected by the fire had insurance.  

What Happens To Those Without Insurance?

Some people will be more hard-hit by the disaster than others, especially more vulnerable populations like the poor. Charities and government have donated significant funds towards disaster relief, with plans to help residents rebuild. With the sheer number of people affected, though, even these contributions may not suffice. The Western Cape Cabinet on Thursday announced that R75-million would be directed towards dealing with the damage caused by the fire and storm.
"Our government is committed to working with the local authorities to rebuild the lives of residents who have suffered great loss. This initial allocation of R75-million is a first step in this process. We will continually reassess the needs and priorities going forward," Western Cape Premier Helen Zille said in a statement.
The provincial government is also requesting further funding from the National Disaster Management Centre and the National Treasury. Much of the dedicated funding is directed towards infrastructure and not rebuilding homes or relocating residents.    

How Much Will Government Funding Help?

According to provincial government, only R7.5-million has been allocated to deal with displaced residents in both the City of Cape Town and Eden District municipalities. Considering that damage to uninsured properties is expected to be in the billions, many are set to be left out in the cold. Residents from informal settlements are hoping that the municipality will build low-cost housing to help those who were displaced, Huffington Post reported.  With no land or estates, these residents are unable to declare bankruptcy like uninsured property owners. Declaring bankruptcy or selling their land is an option for those who were uninsured but own the land they lived on. The story is not the same for those without those assets though. Considering that only R7.5-million has been allocated by government to helping those who were displaced, it is likely that many are going to be left with almost nothing. The budget, divided by the 4 000 people who were displaced, means that each person would only get around R1 875 in assistance. Even those who are insured will still need assistance if they cannot return to their homes. The outlook for those who are both uninsured and poor is uncertain. It can definitely be said that the widespread disaster will have a huge impact on many residents' lives.

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