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Theft sparks need for risk strategy

In recent months, millions of rands worth of electric cables and other steel building components have been stolen from building sites in prime metropolitan and residential centres such as Sandton, Rivonia and Midrand. This plague of theft has taken place in the midst of a property development boom.

Marsh Africa’s Realty division, which insures property assets of more than R100bn in South Africa,reports an increase in cable theft and other steels used in the construction of buildings off various sites. Rodney Osborne, Associate Director & Divisional Executive for Marsh Reality Practice, reports that Marsh alone has received three claims in recent months –each averaging R300K. “Extrapolated over the national property development market, this means that millions of rands of electric, other cables and steel components etc. have already been stolen. This trend may well worsen as we‘ve witnessed, over the past 12–18 months, a significant boom in large-scale property development –including the industrial, office park and retail shopping malls sectors.”

Marsh Africa is a leader in providing cradle-to-grave insurance throughout the lifecycle of a building – from construction through to insuring the property once it is rented out, as well as, cover for company assets within a building.

“The challenge,” says Mr Osborne, “is that this is happening simultaneously with a soft insurance market. For property developers, the insurance market conditions are a positive factorbut for the insurance industry, it is unwelcome news with construction insurance premium rates at a 15-year low.

“The flip side of low rates is that underwriters scrutinise every claim far more closely than they would otherwise do. It is therefore very important; not only that developers comprehensively insure their projects, but also that they seek professional risk advice and tighten their on-site risk management to limit or avoid any claims,” says Mr Osborne.

Risk strategies require constant retooling as the nature of risk evolves. Mr Osborne points out that over the past two years insurance claims resulting from natural causes have diminished significantly; however, these have been replaced by man-made ones. “We are fortunate that there has been less storm and fire damage, but there has been a concomitant rise in cable and other thefts, among others, with Sandton being the epicentre. A boom in construction occurring in the middle of such a soft market heightens the risk of claims being rejected – so companies taking advantage of lower premiums need to use that saving to further improve security and risk measures,” he says.

According to the second-quarter South African Property Owners Association (SAPOA) office vacancy report, vacancies in South Africa’s premier-grade office space remain exceptionally low – at just a 2.2% vacancy rate – underscoring high demand from tenants. Osborne says the developments currently taking place – and Marsh has taken on a book covering developments of almost R5bn in the past year – are mostly premier-grade developments. The report adds that A-grade space maintains an 8.7% vacancy rate overall, both well in line with the national office vacancy rate across all grades of 11% — a small increase over last year.

However, the SAPOA report warned that vacancy rates were trending upwards across all grades in the South African market, due to an increase in speculative developments.

The same trend is evident in shopping malls, with at least 20 new malls expected to be completed in South Africa over the next two years, according to figures from the South African Council of Shopping Centres.

The soft insurance market also means that rates often cannot be increased in direct ratio to higher risk. For instance, a high proportion of new and renovated shopping centres are in non-traditional areas for shopping centres e.g. adjacent to low cost housing areas. “These would traditionally have been considered a higher risk area, but today they generally pay the same insurance premium as a mall in Sandton,” explains Mr Osborne.

Furthermore, with growing compliance and regulation of building standards and environmental impact studies, risks are growing. “Developers have to ensure they have cover for the entire spectrum of risk, from Contractors All Risk, Public Liability, Labour Disruption, (SASRIA Perils), Project Delay, Professional Indemnity, and especially health and safety risks. The fact that developers can today get cover at well below 0.100% compared to the more usual rate of 0.120%, plus should therefore not be banked as a saving but rather invested in risk management – the risks on project developments have not declined but have rather changed from natural hazard to those brought about by the human element and a high level of unemployment,” he says.

Rodney Osborne

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