In South Africa, there's a concerning uptick in insurance claims linked to weather-related events, and the looming spectre of global warming threatens to exacerbate the situation.
Ronald Richman, the chief actuary at Old Mutual Insure, warns of a potential insurance crisis as the country grapples with the increasing frequency and severity of weather-related disasters.
“While the country used to be a Catastrophic Event (CAT) free zone, the scale and magnitude at which disasters have taken place recently means we are now experiencing a dramatic shift in the CAT landscape,” said Richman.
In 2023 alone, Old Mutual Insure documented 10 weather-related claim events, with notable incidents including storms in the Western Cape and a hailstorm affecting Gauteng and Mpumalanga.
This trend isn't unique to South Africa, as Richman highlights the global impact of severe convective storms, which accounted for 68% of insured natural catastrophe losses worldwide in the first half of last year.
Climate change, coupled with phenomena like El Niño, has led to record-breaking temperatures and altered weather patterns, posing substantial risks to both insurers and policyholders.
Richman draws parallels between climate risks and past economic crises, suggesting that climate change could destabilise the global insurance industry, potentially affecting South Africa.
Evidence of strain is already visible in the US, where insurers are withdrawing coverage from high-risk areas like California and Florida due to mounting losses.
The reinsurance market, crucial for spreading risk, is also feeling the heat, with reinsurers grappling with increased losses from customer-facing insurers.
To adapt to these challenges, insurers are adjusting pricing, coverage limits, and market presence, signalling a fundamental shift in risk management strategies.
Richman stresses the importance of accurately pricing risk associated with climate change to maintain the sustainability and trustworthiness of the insurance sector.
He advocates for enhanced modelling techniques and greater public awareness to manage climate risks effectively.
Moreover, he proposes public-private partnerships, akin to successful models like the UK's Flood Re, to address underinsurance and promote risk sharing in South Africa.
In a landscape fraught with uncertainties, Richman stresses the need for proactive measures and collaborative efforts to navigate the evolving risks posed by climate change.
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