Changing hands: One of the farms seized by the Zimbabwean government in recent years. Several families subsequently sued the government for compensation for land that was taken from them. The risk of expropriation without compensation is worrying insurers in SA. File Picture: KAREL PRINSLOO
Changing hands: One of the farms seized by the Zimbabwean government in recent years. Several families subsequently sued the government for compensation for land that was taken from them. The risk of expropriation without compensation is worrying insurers in SA. File Picture: KAREL PRINSLOO

Companies and individuals in SA may find it harder to insure their properties in future as the risk of expropriation without compensation is becoming a real threat for insurers, an insurance expert said on Thursday.

Insurers normally cover the risk of expropriation if it occurs through a series of cumulative acts by the government that eventually diminish the value of a person’s property. But they do not cover legal expropriation done in accordance with a country’s laws.

President Cyril Ramaphosa announced in July that the ANC will seek to change the constitution to explicitly allow for land expropriation without compensation.

"The risk goes up. The chances of expropriation happening have become greater and I think there’s a problem. It becomes more difficult to insure," said Norton Rose Fulbright consultant Michael Chronis at an insurance seminar.

"The only chance that an insurer will have on the litigatory action will be if the law was breached and the expropriation was not done lawfully. But where it is a legal expropriation, there can be no recovery. I don’t think that in that situation insurers will want to cover that risk."

For international companies, insurers may be able to take a country’s government to court for compensation if they can prove the government reduced the value of their investments and land over the years through a series of small acts.

Chronis said this indirect expropriation is insurable through the World Bank’s multilateral investment guarantee agency. The agency will intervene together with the World Bank where "creeping" expropriation is evident and take the matter to court.

The agency has in the past recovered a number of investments that were seized by African governments.

Examples include a family of Swiss-German investors who successfully sued the Zimbabwean government for $240m for the land that was taken away from them.

However, the Zimbabwean government is appealing against the decision.

buthelezil@businesslive.co.za