Scrolling through my weekend news feeds I stumbled on a quote that made the hair on the back of my neck stand to attention: “If insurance is no longer available, other financial services become unavailable too … and capitalism as we know it ceases to be viable.”
The man quoted was Günther Thallinger, board member of Allianz (a little firm with $1.1-trillion in nonbank assets). Excuse me? That’s not a hippie chained to a bulldozer at a climate rally. That’s the guy running risk for one of the world’s biggest insurers.
Some might argue that Thallinger is wrong. That insurers and reinsurers are blaming climate change to cover up decades of underpricing risk or poor portfolio management, and that “climate risk” is the new scapegoat for a mispriced industry.
But what if he’s devastatingly, uncomfortably, trousers-around-the-ankles right? Because from what I am reading, insurance is leaving the building. And without insurance there is no financing. Without financing, there’s no investment. No economic dynamism. Just fragility and failure.
Take a drive down to Durban’s South Basin and ask the folks at Toyota SA what that feels like. After the 2022 floods turned Prospecton’s factory into a write-off zone for Hiluxes, its Japanese insurer, Tokio Marine, did what all good insurers eventually do: look for someone else to blame. That “someone” just happens to be Transnet, the eThekwini municipality and the KwaZulu-Natal transport department, which are being sued for a modest R6.5bn.
The claim? The public sector failed to maintain basic stormwater infrastructure. Berms collapsed. Culverts blocked. Roads washed away. Water surged into a billion-rand factory. Your problem now, dear taxpayer. If Tokio Marine wins, it is open season. Insurers will be queuing up to offload climate disaster liabilities onto municipalities with cracked storm drains and uncollected refuse choking rivers. Every underfunded state-owned enterprise and metro could become the next deep-pocketed defendant in the courtroom climate wars.
But the deeper issue is that even if the insurers don’t win, they will start walking away. And they are. Globally, reinsurers are pulling back. The cost of catastrophe cover is skyrocketing. Entire geographies are being redlined. And this has knock-on effects far beyond property. When you can’t get insured, you can’t get financed. And when you can’t get financed, nothing gets built, bought or borrowed. No mortgages. No trucks. No malls. No solar farms. No ships.
Here at home, our own quiet Cassandras have been warning for years. Last week I read a paper by respected SA actuary Rob Rusconi (one of the sharpest minds in the space, who blew the lid off the way pension fund providers were ripping off members with early termination penalties in the late 2000s) that should be required reading for every financial policymaker, bank regulator, infrastructure tsar and insurance executive in the country.
Titled “Assessing the Potential Sources of Systemic Risk in SA Insurers”, it makes a deceptively modest claim: while insurance doesn’t pose the same existential threat to financial stability as banking does, it can absolutely become a silent amplifier of systemic risk, especially in fragile, highly concentrated markets such as ours.
His thesis is that SA’s insurance sector is woefully underprepared for the systemic nature of climate and infrastructure-related risk. Yes, we’ve got our solvency assessment & management regime. Yes, we stress test firms for capital adequacy. But what we don’t do is model interconnected failure. We don’t ask what happens when Eskom’s grid fails during a heatwave and triggers factory shutdowns that cascade into job losses, missed bond payments and insurer payouts. Or when insurers quietly withdraw from covering low-lying housing developments in coastal cities, and banks pull their lending alongside them.
Rusconi points out that this is as much about risk management as it is about disclosure failure. Many insurers have no obligation to disclose how exposed they are to climate or public infrastructure failures. Which means we won’t see it coming. Until the flood arrives, literally. But infrastructure fragility is only part of the story. At a more structural level our regulatory frameworks and risk models are poorly adapted to the emerging climate reality.
That is the core of Rusconi’s argument. Historically viewed as benign in systemic terms, insurers are increasingly entangled in risk clusters that go far beyond their balance sheets. Traditional actuarial models, he argues, focus too narrowly on individual firm solvency. They fail to account for correlated behaviours, fire sales, inter-institutional contagion and the underpricing of so-called tail risks, particularly in concentrated markets such as SA’s.
Indeed, Rusconi shows that many of the most dangerous systemic risks — those involving liquidity mismatches, operational fragility or herding — are not even disclosed in the risk reports of local insurers. This informational asymmetry creates a false sense of security precisely when climate stress is becoming more frequent and more extreme.
So what happens next? Well, government’s cupboard is bare, so don’t expect a Marshall Plan for municipal resilience. And insurers, which are in the business of pricing risk not carrying it, will get increasingly tight-fisted, litigious and selective. For starters, Rusconi argues that regulators should expand their horizon. The solvency assessment & management regime needs to evolve into something more akin to systemic risk assessment modelling, not just balance sheets but interconnected dependencies, asset correlations and climate-linked exposures.
Next, the insurance industry needs to start shouting from the rooftops. Its data, modelling and early-warning systems are critical public infrastructure now. If risk becomes uninsurable they need to flag it publicly and loudly.
We need a serious public-private rethink on who carries what risk in a climate-volatile world. Catastrophe bonds. Sovereign risk pools. Parametric cover. We will need the whole toolkit, and then some.
The core message of Rusconi and Thallinger is the same: capitalism is conditional. It depends on risk being quantifiable, insurable and transferable. If those conditions no longer hold, the logic of the market will begin to unravel. We would do well to heed the warning, not when the next plant floods but now, while there is still time to act. Just ask Toyota.
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at michael@fmr.co.za.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.