As uncertainty continues in the Middle East, South Africa faces rising fuel costs and potential supply disruptions. In response, businesses, farms and even homes are storing larger amounts of gasoline and diesel than usual. This is happening despite the country's fuel supply remaining basically stable at present. How this plays out in the coming weeks and months will largely depend on what happens in the Middle East and what the impact is on global logistics and oil supplies.
Although storage may seem like a practical short-term solution to deal with the uncertainty of fuel supply and pricing, it introduces a number of unintended consequences. Clayton Ellery, executive head: mid-market clients and broking at Aon South Africa, warns that an increase in fuel storage could significantly alter both risk exposure and insurance implications.
“The moment large quantities of fuel are stored on site, the risk exposure changes fundamentally. The fire load increases dramatically. Vapor and handling risks increase. The potential for injury, third party damage and environmental damage increases. Critically, insurance assumptions valid before storage will no longer apply,” explains Ellari.
a highly regulated risk
Fuel is not an ordinary stock. It is a hazardous, highly flammable substance that requires strict control, proper containment and careful handling. Municipal petroleum bylaws typically require registration or approval when flammable liquids exceed certain limits and may mandate purpose-built storage facilities beyond specific quantities.
In South Africa, fuel storage is governed by a strong regulatory framework. This includes municipal fire safety bylaws, Occupational Health and Safety Act (OHSA) 85 of 1993, National Environmental Management Act (NEMA), and Hazardous Chemical Agents Regulations. In addition, the South African Bureau of Standards (SABS) sets technical requirements through various SANS codes covering storage, handling, transportation and building compliance.
“This means that the issue is not simply whether the fuel is stored on site, but whether it is stored legally, safely and in compliance with all applicable requirements,” Ellery says. “From an insurance perspective, undeclared or non-compliant storage can have serious consequences.”
Insurance implications of non-disclosure
Insurance is structured around manifest risk. When a property that is typically used for light commercial activity or general storage begins to store significantly larger amounts of fuel, it can cause a significant change in risk.
Insurers may ask three key questions:
- Were increased exposures revealed?
- Does the premises comply with applicable rules and bye-laws?
- Are appropriate risk controls and precautions in place?
While the potential for property damage is obvious, the extensive liability risk is often underestimated.
“The consequences of a fire or explosion extend far beyond the insured premises,” explains Ellery. “Damage can extend to neighboring buildings, vehicles and infrastructure. If individuals – whether employees, contractors, tenants or members of the public – are injured due to unsafe storage or handling, the legal and financial implications can be severe. These risks can include bodily injury claims, damage to adjacent properties, environmental damage and regulatory investigations regarding the handling of hazardous substances.”
Operational and health risks
Once fuel storage becomes part of daily operations, it should be treated as a formal risk exposure. Employers are required to provide appropriate training, information and safety protocols before any risks occur.
Petrol and diesel are not only a fire hazard but also a health hazard. Fumes can accumulate in poorly ventilated areas, while improper handling can lead to vapor ignition, skin contact, inhalation illness, and dangerous leakage incidents. Regulations may also require risk assessment, record keeping and, in some cases, medical monitoring.
Aon highlights some of the risks associated with fuel storage:
- Safety and fire/explosion risk: Large quantities of fuel are highly combustible; Leaks or vapor build-up may ignite from sparks, static, hot work, or faulty equipment. Insufficient distance from buildings, parking areas or public roads can increase the impact of an incident.
- Environmental and pollution risks: Leaks or slow seepage can contaminate soil and groundwater, sometimes unnoticed for long periods of time. Inadequate embankment/secondary containment, poor drainage controls, or a damaged tank make leaks more likely and difficult to stop. The cost of cleanup and remediation could be prohibitive and could lead to regulatory investigations or penalties.
- Risk of operations and business interruption: A serious fuel-related incident could shut down operations, disrupt logistics and supply chains, and damage critical equipment and infrastructure. Even a small incident can tie up resources in recovery and investigation, causing delays in normal business.
- Quality, Contamination, and Equipment Damage: Long-term storage can degrade fuel quality (e.g., water ingress, microbial growth, sediment). Contaminated or degraded fuel can damage engines and generators, causing equipment failure, increased maintenance and replacement costs and loss of critical services (e.g., backup power in hospitals or data centers).
- Security and theft risk: Large, visible fuel stores can be the target of theft, vandalism or even intentional damage. Poor access control, lighting or monitoring increases the likelihood and severity of these incidents.
Fuel storage raises safety, environmental, regulatory, liability, operational, quality and safety risks. The more fuel is stored (and the longer it is stored), the more important proper design, maintenance, monitoring and emergency planning becomes.
A risk that requires thoughtful management
Fuel storage is not just a logical decision – it is a governance issue that must be addressed at both management and board level.
“Fuel storage is a risky decision,” Ellari emphasizes. “If something goes wrong, it becomes an insurance, liability, regulatory and reputation issue all at the same time.”
Any organization considering increasing on-site fuel storage should first review its insurance program, policy terms, asset protection and compliance obligations. The important thing is that any significant changes in fuel quantity or storage arrangements should be informed to brokers and insurers. If risk controls or regulations are not followed, insurers may impose special terms or higher deductibles for large fuel storage, reduce or deny coverage, and require engineering surveys, tank testing, and emergency response plans.
On this front, Aon's risk advisors are invaluable in helping businesses identify, recognize and quantify every aspect of physical and net risk, advise on how these risks should be managed, and provide focused risk-related consulting services where necessary.
In volatile circumstances, flexibility matters. But resilience should not come at the cost of creating new, unmanageable threats. The better approach is to plan carefully, disclose early, store safely and treat fuel as it is: a high-risk exposure that demands appropriate risk management and controls,” Ellari concluded.