IIG News

Grid Failure through the Lenses of Risk Transfer and Mitigation

On November 15th the Deloitte auditorium was abuzz with anticipatory guests filing in excitedly to learn and engage about one of the most requested topics we’ve had this year, grid failure.

Past President Thabo Twalo gave the audience a warm welcome and related how in the mid 1900s there was no electricity at all, now all that has changed as electricity is afforded to so many people that didn’t have it before. He noted that we need to cast our eye into the future and look at some of the developments happening there– “we may have come a long way, but we have to ask ourselves do we have what it takes compete there as well”.

Next up we had our 2023 President Simphiwe Magangane dropping some positive information on this year’s thought leadership sessions having accumulated 4405 CPD points from 13 sessions!

Simphiwe went on to share a story with the audience on how loadshedding was a foreign concept until it hit home and now we find ourselves in the shoes of so many of our neighboring African countries.


Just before we jumped into our discussion for the day, a presentation was given by AC Develop on the IIG CPD vault. Members were shown how to navigate the page and find information, download CPD certificates and other documents they might be looking for related to the insights sessions and other CPD activities.

Our first speaker Hayley Schell from Swiss Re, shared with us that during Covid 19 in the economic slowdown, load shedding was largely suspended because of the reduced demand for electricity but in March 2021 Nathiba, Tutuka, Majuba, Kusile, Duvha, Kriel, Kendal and Medupi power stations all experienced breakdown and we were catapulted into level two, and within months we were at level 4 and that forced the Swiss Re team to say is grid failure going to be the next Covid?  

They then started examining underlying wordings and the Swiss counterparts were shocked when it was disclosed to them the extent of the potential for a claim from non damage BI and CBI, and even more so when they looked at the Public Utilities extensions. What they found was that it is common in our marketplace there were huge sub-limits or no sub-limits, few or no time deductibles and it became very clear that the insurance companies and Swiss Re included have not even quantified the potential exposure relating to these extensions. They realised that they needed to understand these two things:

  1. the grid and,
  2. they needed to understand the extent that underlying policies could respond or would respond in terms of the grid failure

Swiss Re then decided to engage with the industry and a with a number of experts.

Understanding the construction of the grid and the implications of the fragility of the grid, they needed to understand some scenarios and look at the rest of the world.

It was interesting to note that in those early discussions the very first responses were “your problem” and so they started painting a picture to say “not our problem, your problem’ . During these negotiations of understanding what a grid failure could do to the solvency of insurance companies , the dialogue started to change.


Priyen Mehta, also from Swiss Re, remarked on the electrification of  South Africa, noting that although quite notable in the country’s timeline post-apartheid, we weren’t structurally ready for it.

💡Eskom actually has its power stations predominantly in the coal belt, all around the Mpumalanga. Priyen continued to share with us that the grid is actually constructed to be able to supply 50GW of power and currently we are producing around 34GW.

The main thing with load sharing is we need to understand that this is actually beneficial to us and for us.

South African’s Eskom basically run the best energy mitigation or power grid failure mitigation program in the world. We need to understand that the grid operates at an efficient level when the grid operates at 50Hz if we are producing less energy , the Hz start dropping, and once they drop below 47.5 which is the threshold, we will have grid failure.


💡Each loadshedding stage is worth 1GW and protocols states that we must always have 2GW power in reserve, so technically, when we’re on stage 1 loadshedding, the country as a whole actually has excess capacity of 1GW, but we have to hold 2GW in reserve. Same as if we are on stage six, it doesn’t mean that we’re 6 GW short, we are actually 4 gigawatts short as there’s always 2 that’s – international protocol.

Many merging markets, as they go through industrialization, they started having electricity problems. We are told that this is common all throughout Asia South America and Africa and when the population explodes without the correct planning. In our case, the initial construction of the grid was constructed for population about half of what we currently have of 65 million.

💡Black Start is a protocol put in place to ensure that we get the back up and running if the grid fails. In South Africa, Priyen stated that we need one such facility, however we have three. We ha hydro as well as open gas turbine which will kick start the grid should it fail.

Black start could be 5 hours at best, 3 days at worst with knock on effects after 3 days being quite severe.

Priyen was once asked “what’s Swiss Re’s probability of grid failure”? to which he answered quite honestly “even though we have a couple of actuaries on our team, no one can actually give you a real probability.”


Hayley commented then they decided that as Swiss Re they are going to impose a physical damage to property following a named peril only basis and we would give markets 2 years with reducing annual aggregate limits to be able to respond to those losses.

Ismaeel Adams took us through some of the  framework of how to manage the exposure.

Different scenarios of loss positions summarised as follows:


  1. Physical damage trigger
  2. Non-physical damage trigger



  1. Direct link
  2. Indirect link


  1. Direct losses
  2. Consequential losses
  3. Losses occurring on other lines of business

Muzi gave us some insights into grid failure and what it means for SASRIA, what it means for the country as well. He gave a few comparisons as well in terms of what the global market does, restricting his delivery to similar markets, that is , more emerging markets.

Starting us off under protest evolution and laying out the trigger for SASRIA cover, i.e the behavior of people who are disgruntled. We need to understand the history of South Africa to understand the psychology of the individual that we’re talking about. He gave us an indepth look into the evolution of protests, from before 1979 when SASRIA was formed, right through to the 2021 July unrest.

Current year main events which include truck burnings, student protests across several universities and the Cape Town taxi strike.

Protest Monitoring, making comparisons between:

  • ISS Monitoring, and
  • SASRIA Monitoring

We looked at the global grid failures of relatively emerging markets India, Pakistan, Bangladesh, Indonesia, Brazil and Paraguay, Philippines, Venezuela.

Stating that SA has a more sophisticated way of responding to the demand relative to what the supply is. Common theme highlighted is that when there is a blackout, the minute there is a quick response in trying to start up and restoring power again, a gradual process, and the quicker it is done the quicker the population is able to recover.

A quick response in the aforementioned emerging countries resulted in high level economic loss – loss increases relative to the number of days it takes to restore power.

Loadshedding is extremely necessary, the various stages are designed to make sure that before the time that would lead to excess demand that it is switched off to maintain capacity at a level that matches if not slightly above, to keep that buffer. We were put at ease with the conclusion to the session being that this puts South Africa in a position where the probability of a total black out  happening is relatively low.

Article Written by: Jabu Mtimkulu