CAT seems a perfect acronym for a catastrophic event. The wild and unpredictable natural disasters have had a way of catching humanity off-guard with the frequency and diversity of risks overwhelming our collective preparedness.
In the World Economic Forum’s 2025 Global Risks Report, extreme weather events ranked second out of 10 in terms of the global risks with the highest potential for severity. By contrast, a local survey on what keeps people up at night placed climate change eighth out of 10.
This does not mean South Africans are unaffected by natural disasters, the country has endured droughts, floods and fires all in the same year, but rather that immediate concerns such as crime and the cost of living ranked higher.
The reality is that extreme weather is rapidly becoming the leading driver of financial loss for households and businesses. Claims data over the past five years reveals that water, storms, and fire now dominate patterns, signalling a profound shift in collective risk.
Africa’s insurance gap is estimated at 80% at best, to 98% at worst, and will take time to reduce
What’s true is that the collective impact of these worries is exacerbated by the rising number, intensity and diversity of CATs, worsening those issues that keep us up at night. They have contributed to food insecurity and rising food prices. They contribute to human displacement and poverty and can contribute to crime. The worries are the same for businesses as they are for households.
The growing momentum of CATs poses a significant risk to the insurance industry that is naturally investing more in understanding their potential occurrence and the potential damage they may cause. Fortunately, we live in a time when technology and data enable improved understanding. From scenario analysis and simulations to geospatial risk mapping, the tools are improving and allowing the industry to better account and price for climate related risks.
This growing body of research and knowledge is instrumental in helping households and businesses, whether they are insured or not, to mitigate risk and the severity of damage when these events happen. It is important then, for the industry to still see the uninsured as a stakeholder. Africa’s insurance gap is estimated at 80% at best, to 98% at worst, and will take time to reduce.
Unlike high fences and gated communities as a mitigator to rising crime for those who can afford it, the reality of under-insurance in a time of CATs requires us to be more wholistic and inclusive in facing the challenge and improving preparedness. In Standard Bank’s recently released “Climate Insights Report”, Penny Byrne reminds us that the atmosphere has no borders. Flash floods can cross from Mozambique to Limpopo and fires can bridge provinces in a heartbeat.
The response needs to cut across superficially separated communities and entities. Being prepared requires partnership across the public and private sectors, as well as collaboration across neighbouring countries. More so because 50% of those employed in the Sub-Saharan region work in the agricultural sector, one of the most vulnerable to CATs, which can tip large groups of people into despair. Our collective preparedness aids in the protection of businesses, homes and livelihoods, employment and the consumer markets that our economies depend on.
The vast insurance gap makes it so much more important for those who are insured to stay insured. When insurance coverage is in place, its impact extends far beyond the immediate beneficiary. Payouts have a multiplier effect on communities, cities and regions.
Beneficiaries are the primary gainers, but insurance revives devastated cities, generating new demand and business activity as assets and equipment are replaced and infrastructure is rebuilt, creating secondary and indirect beneficiaries. Construction activity dominoes up and down the supply chain keeping SMEs alive and boosting employment.
As the region navigates the unpredictable impact of CATs, preparedness lends itself to new opportunities. Two paths emerge. The first lies in preventing the worsening effects of global warming, a space increasingly shaped by ESG investing, renewable energy, green construction and circular economy. Renewables, in particular, have attracted significant investment interest in South Africa.
The second path focuses on managing existing damage. With rising temperatures and increased occurrence of droughts threatening the fresh water supply, solutions such as desalination are becoming critical to securing water availability for crops, livestock and communities.
• Makhoba is lead specialist: research and insights at Liberty Group, the insurance and asset management arm of the Standard Bank Group
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