Insurance experts warn about hidden risks of on-site fuel storage

With fuel prices rising rapidly and severely impacting commercial activity on a global and local scale, businesses across fuel-dependent sectors in South Africa have been forced to rethink how they manage their supply.

From agriculture where fuel is used for everything from powering machinery and transporting produce to ensuring equipment can be run off-grid in the event of electricity instability, to freight and logistics, construction and others, many businesses have sought to store fuel on site. This understandably assists in managing operational continuity to accommodate day-to-day activities while shielding businesses from price volatility, but, says Kobus Groenewald, Consultant for GIB Insurance Brokers, it’s important they are also cognisant of new risk exposures that may apply.

“Fuel storage is governed by a layered set of safety standards and municipal by-laws", says Groenewald. “With businesses across the spectrum moving quickly to accommodate their fuel needs on site, they need to be amending their risk management practices and policy disclosures just the same, or they may find themselves operating outside the conditions insurers expect to see in place.”

Industry bodies including the South African Insurance Association have already warned that speculation around fuel supply and rising costs is prompting both households and businesses to store fuel more frequently. Their guidance is that petrol and other flammable liquids should only be stored in controlled quantities and must comply with municipal regulations and established safety practices.

Understanding the compliance thresholds for on-site fuel storage

For instance, one of the biggest misconceptions is that fuel kept in drums, containers or small tanks is automatically regarded as low risk. In reality, even relatively modest quantities of petrol or diesel fall under flammable substances regulations and municipal fire safety by-laws. These rules vary between municipalities, but they generally place limits on the quantities that may be stored without special approvals.

Where storage exceeds those limits, businesses may be required to install approved flammable stores or obtain certification from local authorities. Even where quantities fall within permissible thresholds, storage conditions still need to meet basic safety expectations.

Those expectations typically include the use of certified containers, storage in well-ventilated areas away from ignition sources, proper labelling of fuel types and clear warning signage indicating that flammable liquids are present. Separation from electrical equipment or open flames is essential, as is ensuring that basic fire protection equipment is available nearby.

The physical environment around the fuel is also an important consideration. Storage areas should be designed to prevent spills from spreading, often through the use of bunded areas or containment trays, and businesses should have some form of spill response plan in place. In operational environments where fuel is transferred between containers or equipment, precautions to prevent static discharge are equally important.

“We understand the practical reality of the matter, where fuel storage on premises develops gradually with a few extra drums here and there, and over time the need to formally review and disclose information to update insurance processes can be overlooked,” says Groenewald. “Consider this your sign to engage your broker for a full review.”

He adds that agricultural and commercial insurance policies do not always prescribe a fixed litre limit for fuel storage. Instead, underwriting decisions typically rely on disclosure of the exposure and confirmation that the insured is complying with applicable regulations and safety standards. “Where fuel storage is not fully disclosed or documented, insurers may only become aware of the exposure after a loss event has occurred, which is obviously not ideal,” he adds, “and the reason why brokers encourage clients to revisit how fuel storage is recorded within their insurance arrangements.

“In many cases the solution is not complicated. Businesses simply confirm whether fuel is stored on the premises beyond what sits in vehicles or generators, record the quantities involved and document how it is being stored. Once that information is available, brokers and underwriters can assess whether the controls in place are appropriate,” says Groenewald.

Fuel storage and handling must also align with several overlapping frameworks, including the Occupational Health and Safety Act and applicable safety regulations governing hazardous substances. Relevant South African National Standards, particularly those dealing with dangerous goods storage, may also apply depending on the nature of the operation.

Municipal fire safety by-laws form another critical layer. These regulations determine storage limits and may require specific infrastructure or permits if those limits are exceeded. Because the rules differ between municipalities, businesses operating across multiple sites may face different compliance requirements at each location.

There is also the value of the fuel itself that should be considered. Larger on-site reserves mean that more insured value may be sitting within a single premises at any given time. If sums insured have not been adjusted to reflect the higher value of stored fuel, businesses could face underinsurance in the event of a loss.

“When fuel storage is approached as part of a structured risk review, it becomes manageable,” he says. “The challenge arises when storage develops informally and the insurance programme has not been updated to reflect that reality. That is when businesses can be caught off guard.”

Kobus Groenewald

Consultant | GIB Insurance Brokers