by Robyn van der Walt, Senior Account Executive
The rising tide of risk
The South African insurance industry is facing a crisis, driven by the increasing frequency and intensity of natural disasters. Last year, the nation witnessed around 28 such events, ranging from intense rainfall and flooding to hailstorms and wildfires. The catastrophic floods that ravaged KwaZulu-Natal and the Western Cape serve as stark reminders of South Africa’s growing vulnerability to climate change.
Insurers are retreating from the flood lines
Insurers, faced with mounting losses and the prospect of even more catastrophic events, are increasingly reluctant to provide coverage for flood-prone areas. The cost of rebuilding after such disasters has skyrocketed, making it economically unsustainable for insurers to bear the risk. This retreat from flood-line regions is leaving many businesses especially near rivers and the ocean regions exposed and vulnerable.
The cost of protection
The rising cost of reinsurance, a crucial safety net for insurers, is further exacerbating the affordability crisis. Reinsurers, burdened by increasing losses and heightened demand, are raising premiums, reducing capacity and becoming more selective with clients. This means that insurers must either absorb a larger portion of the risk themselves or pass on the increased costs to consumers, through increased excesses and or a portion of self-insurance.
The importance of agile climate insurance
The insurance industry must adapt to this evolving risk landscape. Traditional risk management strategies are no longer sufficient on their own, such as relying on historical data and grouping a pool of clients together when assessing risk. Insurers now assess each client on their own merit and use predictive modelling techniques to determine the probability of a futuristic event. By investing in data analytics and risk modelling and by better understanding the probability and potential impact of flood events as an example, insurers can make more informed decisions about pricing, underwriting and risk management, with each client on a case-by-case basis.
Insurers also now need to explore innovative solutions, such as parametric insurance, which provides payouts based on the occurrence of a specific event rather than the actual losses incurred.
A collaborative approach
Addressing the challenges facing South Africa’s insurance industry requires a collaborative effort from all stakeholders. Policymakers and regulators must play a pivotal role in creating a supportive environment for the industry to thrive. This may include:
- Developing affordable insurance products: Exploring innovative ways to make insurance more accessible to a wider range of consumers.
- Improving risk management practices: Providing guidance and resources to insurers on how to better assess and manage flood risks and exposure. For example, we offer Fire Response Plans as part of a toolkit for clients, playing a pivotal role in managing risk.
At SATIB we are committed to providing innovative insurance solutions to protect our clients in the face of these increasing climate risks. Here’s how we’re adapting to the changing landscape:
Data-driven risk assessments: We leverage advanced data analytics and predictive modelling with insurers to accurately assess individual risks. This allows us to tailor coverage and pricing to each client’s specific needs.
Innovative insurance products: We offer a range of innovative products, providing flexible and efficient coverage for various risks related to climate-related events.
Risk mitigation strategies: We work closely with our clients to develop comprehensive risk management strategies. This includes providing guidance on flood preparedness, fire response plans and other preventive measures and innovative solutions.
Strong partnerships: We collaborate with leading insurers and reinsurers to secure optimal coverage and pricing for our clients. By leveraging our strong relationships, we can access innovative solutions and secure capacity in the toughest markets.
Climate change undeniably presents complex insurance challenges, but it’s not insurmountable. By working together – insurers, our brokerage and clients alike – we can build a more resilient future.
Here at SATIB we’re committed to doing our part. Don’t wait until disaster strikes. Contact us today to discuss a personalised insurance plan tailored to your specific needs.
