The insurance industry is facing a growing challenge: over the years we have seen a rise in the frequency and severity of extreme weather events attributed to the climate crisis. In 2023 about 240 climate-related events were recorded globally.
In South Africa we are seeing this devastating trend of heavy flooding across different provinces, ravaging homes, properties and vehicles and changing lives instantly. More concerning is the loss of life, which usually has long-lasting implications on family dynamics. Earlier this year, South African researchers predicted 2024 would be a year of “climate and extreme weather events”.
It’s safe to say that the climate is not changing; it has changed. The effects are tangible, and the impact is real.
According to a 2023 report by Munich RE, global losses due to natural disasters were estimated at $270bn (about R5-trillion) and insured losses were roughly estimated at $120bn in 2022, one of the highest economic losses ever recorded.
In South Africa, the KwaZulu-Natal floods of April 2022 were noted as the largest flooding event on the continent with an economic loss of $3.6bn. The most concerning part is the fact that only 18% of those losses were insured. In 2023, it was reported that insurers paid out about R35m in claims for the damage caused by the hailstorms in November.
While it can’t be predicted what kinds of catastrophes we can expect in the future, we do know we are experiencing changes in weather patterns, and we need to adapt, anticipating these future storms.
As the world changes to adapt to adverse climate events and new weather patterns, the insurance industry has had to do the same. Over the last decade, there have been significant structural changes in the global insurance industry, driven by the unprecedented new risk factors that will be impossible to ignore.
The protection gap remains one of the significant concerns for the industry, particularly when it comes to the recovery of losses following a severe weather-related event.
Climate-related events can have profound effects on individuals and what matters to them. They affect their financial stability, daily lives, emotional wellbeing, community cohesion and sense of safety.
While it can’t be predicted what kinds of catastrophes we can expect in the future, we do know we are experiencing changes in weather patterns, and we need to adapt, anticipating these future storms.
The devastating storms have the potential to drive individuals and communities towards prioritising safety measures, seeking support, and advocating for change. However, we can’t ignore the fact that we are living through tough economic times. Not only have we seen clients cancelling subscriptions, but price-sensitive consumers are downgrading or shifting to lower-priced brands and products.
The future of the insurance industry will depend on its ability to be adaptable, modular and customisable so as to insure more people. In these tough economic times, this will help consumers prioritise what is most important to them and prevent the underinsurance of certain assets.
While the most noticeable positive impact of insurance is experienced through the recovery of losses, the industry is not just limited to compensation. Insurance plays a proactive role in risk management and prevention — potentially the most significant role in helping consumers protect what matters most to them.
Insurers also need to contribute to a better understanding of risks through advanced risk models and promote risk awareness by offering tailored terms and advice to policyholders. By understanding the effects of changing weather patterns, individuals can make informed decisions, seek appropriate support and actively contribute to building a more resilient future.
The calamities brought on by the environmental challenges highlight a need for intentional collaboration between players to safeguard the sustainable growth of Africa’s economy. Recognising that vulnerable communities are often the hardest hit by climate-related disasters, it is critical to enhance the adaptive capacity of communities. The industry could work with municipalities to help integrate early warning systems for communities.
By providing financial protection, promoting risk reduction measures, and fostering collaboration, the industry can help safeguard Africa’s growth and contribute to a sustainable and resilient future for the continent. Insurance can be seen as a force for good. The critical role in economic growth cannot be overstated, as it ensures stability, resilience, and the ability to recover from climate-related events, ultimately driving sustainable and inclusive development.
• Van Greuning is head of Standard Insurance
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