By: Yulanda Paterson, GM Specialist Division – Infiniti Insurance & Infiniti Online
Thank you for reading this post, don't forget to subscribe!South Africa is increasingly experiencing the devastating effects of climate change, characterised by the frequent occurrence of extreme weather events, such as floods, droughts, and heat waves. These events have caused substantial damage to property and infrastructure, resulting in a significant increase in climate-related insurance claims.
Contributing factors to this increase, include rapid urbanisation and population growth, which lead to the concentration of people and assets in areas exposed to climate-related catastrophic events. Unfortunately, the unpreparedness of the business communities for the impacts of climate change remains, exacerbating the damage caused by these extreme weather events.
The Allianz Risk Barometer 2024 report highlights that the United States has experienced an increase in severe convective storms, with 18 events resulting in insured losses exceeding $1 billion each. The total insured losses for these storms surpassed $50 billion for the first time, emphasising the tangible impacts of physical risks associated with climate change. Extreme weather events are estimated to cost the US economy nearly $150 billion annually.
Catastrophes in South Africa
The events of climate change catastrophes in South Africa include:
- Floods: In January of this year, KwaZulu Natal and the Free State experienced flooding caused by storm surge. Approximately 1 226 households in these provinces were affected. Government reports indicate that there were 41 fatalities, with 21 of them occurring in Ladysmith, KwaZulu Natal, and the remaining in the Free State province. In a different incident, heavy rainfall in 2019 resulted in severe flooding and landslides in KwaZulu-Natal. These natural disasters caused the tragic loss of 448 lives, displaced over 40,000 individuals, and led to the destruction of more than 12 000 houses.
- Droughts and water shortages: Severe droughts have affected many parts of South Africa in recent years, leading to water shortages and restrictions. In 2018, Cape Town experienced a severe drought that brought the city close to “Day Zero,” when the city’s taps would have run dry.
- Heatwaves: South Africa has experienced several heatwaves in recent years, with temperatures reaching record highs. In 2019, the country experienced its hottest December on record, with temperatures reaching over 45 degrees Celsius in some parts of the country.
- Wildfires: On June 7, 2017, a series of devastating fires broke out in the Knysna and Plettenberg Bay area. Over several days, the fires spread rapidly, consuming over 16 000 hectares of plantations, fynbos, and urbanised areas. Recently, a raging veld fire at Sardinia Bay in Gqeberha destroyed several homes.
- Agriculture: Climate change is also having a significant impact on agriculture in South Africa. Rising temperatures, droughts, and changes in rainfall patterns are making it more difficult for farmers to grow crops and raise livestock.
Mitigating the risks of climate-related claims
The escalating climate-related claims have far-reaching implications for the insurance industry in South Africa. To address this challenge, a multifaceted approach is necessary. Firstly, substantial investments in adaptation measures are crucial. Stakeholders, including the government, businesses, and communities, must invest in adaptation measures to reduce the vulnerability of people and assets to climate change risks. This includes building flood defences, improving drainage systems, and planting trees.
While some insurers are reducing their exposure to climate-related risks by reducing their capacity or withdrawing from certain markets, at Infiniti Insurance Limited we believe that educating the public about the risks of climate change and the importance of insurance coverage is critical. By increasing awareness, demand for insurance can be stimulated, ensuring that individuals and businesses are adequately prepared for the financial consequences of climate-related events.
Higher premiums resulting from increased costs of climate-related claims are posing challenges for businesses and individuals seeking insurance coverage. This is putting pressure on the profitability and solvency of insurers. To address this situation, insurers need to be innovative in developing comprehensive and affordable insurance products that cover climate-related risks, including both property damage and business interruption.
A serious challenge
The escalation of climate-related claims in South Africa is a serious challenge for the insurance industry and society at large. By working together, insurers, brokers, reinsurers and insured, we can mitigate the risks, build resilience, and ensure the long-term sustainability of the businesses, society, and insurance industry.
