Climate change disrupts short-term insurance industry

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The bruising drought and the stifling heatwaves that swept through South Africa during this summer have brought the issues of climate change to the fore.

Three years ago, flooding and severe hail storms wiped out entire crops.

This had a detrimental impact on the farming community and adversely impacted the country’s exports and saw the insurance industry incurring severe losses.

These losses resulted in a strategy change for certain insurers which exited the agricultural crop insurance market.

This year, South Africa is experiencing extreme drought which will again result in punishing losses to the farming community and insurers. The volatility of the climate change, increased frequency and severity of natural events will again force insurers to re-evaluate the viability of continuing to insure agricultural crop business.

Climate change has resulted in more severe electrical storms, especially in the Highveld area of the country. This has resulted in increased lightning damage and fire losses to property.

Insurers have responded with a consumer education campaign informing them how to prevent damage from lightning strikes.

Climate change has also seen an increase in the frequency and severity of hail storms. In 2012, the industry recorded six significant catastrophe events in the last five months of the year. This increase in frequency of severe hail storms causing serious damage in built-up areas, not experienced before, caused losses in Motor and Property portfolios.

In November 2013, one significant hail storm was experienced across most of Gauteng.

The losses experienced by the insurance industry from this single event surpassed the cumulative losses sustained from the six events of 2012. To mitigate future damage and thus potential insurance losses, insurers have started proactively informing clients of expected hail storm activity, so that preventative measures can be taken to reduce losses.

Global warming is causing sea levels to rise, increasing the risk of damaging flooding events during potent coastal storms.

This has a notable impact on properties in low-lying coastal which also face the risk of shoreline erosion and degradation. The Southern Cape has been identified as one of the regions where rising sea levels could pose a future threat.

In 2014, the Cape region experienced raging fires caused by a combination of high winds and an arid landscape. The fires swept uncontrollably across vast areas causing damage to property although, in this instance, the industry did not incur significant losses.

South Africa has experienced significant catastrophe events in the last four years which have had a significant impact on the insurance industry. Happily, the industry has reacted positively and, indeed, proactively to these events: future strategies of insurers have been altered and consumer education campaigns have been rolled out to prevent future losses. In addition, collaboration initiatives with government, municipalities and farmers have begun to address threats and sustainable new practices.

Climate change not only brings risks with it, but opportunity too. A move to green energy will see new installations requiring insurance while there will be demand for creative solutions for covering losses due to climate change.

Insurance companies that embrace climate change will be in the best position to benefit and grow revenues.

Anees Vazeer, Lion of Africa Insurance Chief Financial Officer 

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About Author

Bontle Moeng is the Founder and Managing Director of BizNis Africa. Moeng has spent 16 years working in the digital and online media industry across Africa. She applied her trade at True Love magazine prior to discovering her passion for Investment news in key sectors across Africa. Moeng previously worked for ITWeb, Starfish Mobile Technologies, ITNewsAfrica, AVATAR Agency, eNitiate, Global Interface Consulting and Havas Johannesburg. Her primary focus is to provide solid and valuable content on investment opportunities for the ICT, Energy and Mining sectors across Africa. In addition, the online news publication assists global companies to expand their presence in Africa. Email: news@biznisafrica.co.za

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