With severe weather hitting South African consumers from all sides, they are realising how important it is to have short-term insurance cover. According to the global reinsurance broker, Aon, the 2023 economic losses due to natural catastrophes was 22% above the 21% century average, raising questions about the long-term affordability and sustainability of cover for vulnerable communities.
Rulashe says while the impact of climate change varies by region and province, according to GreenPeace, the interior of Southern Africa is understood to warm at twice the global average rate, a likely catalyst for heatwaves which have become a common occurrence during the past summer. “For example, neglected stormwater drainage or sluice gates can magnify flood damage, while shortages of firefighting equipment, access to water or manpower can delay firefighting responses, leading to total instead of partial losses.”
“The unpredictable nature of natural disaster events also means that the ability of underwriters to effectively measure, predict and price risk will be affected. It may lead to premium increases in vulnerable areas which may impact affordability issues. We have observed that in the US, this has become a real issue, where some insurers limiting or pulling cover from fire-and flood prone areas leaving houseowners with limited cover options.
Rulashe says in the context of South Africa, the protection gap is further exacerbated by macroeconomic factors such as low growth, rising unemployment and the cost-of-living crisis. These factors continue to place pressure on the consumer, further widening the protection gap. Swiss Re estimates South Africa’s natural catastrophe protection gap to be $0.5 billion.
Additionally, the use of enabling technologies and innovative risk transfer mechanisms that can aid towards building the resilience of societies prone to natural disaster has become increasingly important, Rulashe says. Therefore, responding to the increased frequency and severity of climate events by raising premiums to cover likely future payouts is no longer the only feasible solution.