Role of Insurance in the Electricity Distribution Industry

1. Titel hier presented by John Doe Date here SOUTH AFRICAN INSURANCE ASSOCIATION

2. SAIA: Electricity Distribution Industry presented by Debbie Donaldson 26th July 2012

3. SAIA: Electricity Distribution Industry • Role of short-term insurance • ESG risks • Current insurance services • Learning's • Recommendations for future sustainability

4. The Role of Insurance in the Economy • A key risk management tool in normalising financial losses • A catalyst in driving risk management behavior across communities that benefit from the financial protection • A key enabling mechanism for economic activity • A catalyst in the financial investment flow needed for sustainability

5. Sustaining the role of the industry • The ability of the short-term insurance industry to remain relevant, • inspire confidence in stakeholders, • offer • products and solutions within the South African market • in such a way • that • we promote • and • not harm • our environment or our communities.

6. Current situation : Top 10 ESG Risks June 2011 Have adopted UNEPFI : Principles for Sustainable Insurance

7. Key underlying challenge AN INCREASING LEVEL OF SYSTEMIC RISK Source: WEF Global Risk report 2012 Driven by the growing interconnectedness between the physical, economic and social environments in which we live

8. Current offerings Generation Assets and operations Material damage and accidental damage Distribution Operations protection Material damage and accidental damage Less utilisation of insurance BUSINESS INTERRUPTION NOT OFFERED Insurance is a financial tool for unforeseen events Losses that go beyond the capacity of the organisation to manage in the event of the loss

9. Current offerings INSURED CLIENT INSURER AND REINSURER Self Insure Risk management application Technical and institutional skills Effective planning in place Clear accountability Local insurance cover • International markets APPETITE for the size of the risk UNDERSTANDING of the local market conditions EXPERTISE and technical skills The BUSINESS CASE must prevail

10. Learning’s • Application of risk management • Without an estimated reserve for electricity in place insurers cannot offer business interruption as the current situation is not considered as an “unforeseen event” • Power generation and distribution infrastructure has a “design life” • The lack of maintenance is a major risk • Practicalities become increasingly expensive and impractical to manage e.g. components to repair are not available

11. Learning’s • There is an appetite to insure • However, risk management principles must prevail • In the absence of this the cover becomes increasingly difficult to place • Technical expertise and experience • Operational experience - a key to sustainable insurance offers • Daily operational practice part of risk management expertise • Application of insurance at different levels of government not understood, therefore use as financial management tool cannot be optimised

12. Learning’s • Independent and renewable energy producers or alternative distribution management • Project finance ordinarily requires risk management practices and insurance • Revenue generation capability drives investment • Business interruption becomes increasingly relevant and important • Innovative market offerings are emerging • Renewable energy power producers attractive • New market players , increase market opportunities • Experience level of operations is critical with new technology and ability to distribute

13. Learning’s • Disaster risk management • Recovery period from a loss takes time • Alternative reserves need to be addressed • Resilient economic development • Sustainable homes - alternative energy sources • Sustainable businesses – alternative energy sources • Frameworks and policies that support a positive consumer experience • Current investigation into energy efficient alternatives to electric geysers: affordability, skills, standards for technology, policies that enable economies of scale e.g. light bulb transition

14. Recommendations • Public private engagement through sustainable platforms: accountable, engagement, utilise core competencies • Nedlac Green Accord • Enabled an investigation to proceed by the insurance industry, government departments focused on enabling frameworks and delivery mechanisms • Still to be seen whether we will address a concrete outcome, but the roles have shifted. • Department of Cooperative Governance • Disaster Risk Management Centre and the insurance industry • Drafting of a Memorandum of Agreement • Adopt a municipality • A SAIA member and 5 municipalities • Business Against Crime as a vehicle has worked for a different application

15. Recommendations • Risk based planning • Maintenance of existing infrastructure as we do not have clear reserve or alternative • Systemic review of the risk (multiple role players, multiple impact areas) - what areas produce maximum impact ? • Drive sustainable “behaviour “ • Technical skills deployment through a mechanism that there is an appetite for • Maintenance program • Ensure predictability on issues that are within our control • Strengthen shared information pools and access to information for profiling of risks - multiple stakeholders and decision making required • Ensure polices that create predictability • Constant change : decreases predictability, decreases risk sharing options

16. Titel hier presented by John Doe Date here Thank you!