Thabiso Rulashe | Head | Investor Relations & Strategy | Santam | mail me |
Over the last couple of years, climate-related disasters have increased in both frequency and intensity. These disasters have accelerated rapidly, creating a physical and socioeconomic divide in risk exposure and protection.
At a global level, insurance premiums for physical risks and natural catastrophe protection will increase by 50% by 2030. These premiums will reach between $200 billion and $250 billion by that time.
A look at climate-related insurance claims
South Africa was traditionally viewed as a low-risk environment for natural disasters, but that is no longer true. Last year, adverse weather and fire-related claims rose significantly, along with exposure to Türkiye earthquake losses.
In the Western Cape, floods cost us R403 million, while the Gauteng hailstorm added R180 million. Fire claims reached R422 million, reflecting a nearly 9% increase from 2022. This upward trend has continued into 2024.
During the first half of the year, we covered R607 million in weather-related claims. This amount represents a significant increase from R150 million in 2023.
Extreme weather events will become more expensive for the industry and create affordability challenges for households and businesses.
Bridging the protection gap
At the same time, this trend worsens the protection gap, which disproportionately affects low-income communities. The protection gap represents the difference between economic losses and insured losses. This global issue heavily impacts emerging economies and poorer populations, where most losses remain uninsured.
Narrowing this gap is crucial for building resilience and mitigating the social and economic effects of extreme weather events. Recently, the global protection gap narrowed to 60%, one of the lowest on record, according to AON.
However, South Africa’s protection gap continues to expand. In the EMEA region, which includes South Africa, the protection gap stands at 83%. Unfortunately, harsh macroeconomic factors further widen this gap.
Low economic growth, rising unemployment, and the cost-of-living crisis continue to pressure consumers. Insurers must recognise that each unprotected asset represents a potential setback for individuals and entire communities. These setbacks diminish the capacity to recover from catastrophic events.
The evolution of climate risk and insurance
As insurers, we must educate both clients and intermediaries about changing risks and weather patterns. This education should highlight the impact of these risks on the value chain. Additionally, we must raise awareness about industry challenges and encourage proactive change.
The evolution of climate risk also reflects in the regulatory landscape. Mandates for climate-related disclosures, such as the Task Force on Climate-Related Financial Disclosures (TCFD), play a role. Sustainable Finance Disclosure Regulation also drives compliance and transparency.
Progressive climate regulations and stakeholder pressures have encouraged action on climate change. To comply, insurers must improve data quality, integrate climate risk assessments into underwriting, and support green business models. For insurers, data-driven innovation remains key to matching the pace of climate change.
Using advanced technologies enhances our understanding of risks and premium adjustments. Predictive analytics, geocoding, and scenario analysis enable more accurate risk assessments. However, resilience requires more than product design.
A proactive approach involves partnering with communities and stakeholders to foster collaboration. Our Partnership for Risk and Resilience (P4RR) programme demonstrates this commitment.
Navigating a changing world
By working with local municipalities and research bodies like CSIR, we support climate adaptation plans in vulnerable communities. Additionally, collaborative data-sharing and risk assessments help build predictive capabilities for disaster preparedness. This systematic approach emphasizes early warning systems and proactive risk management.
Improved emergency response and disaster management strengthen resilience within these communities. This partnership-based strategy highlights insurance’s dual role as a risk manager and an enabler of financial inclusion. Ultimately, insurance provides financial protection and resilience against severe weather-related losses.
We help individuals, businesses, and communities recover and adapt. In this new era of risk, the industry must rise to these responsibilities. Our choices today will shape resilience in the future. Every initiative, product, and partnership can contribute to a more resilient world. A collective effort ensures the ability to withstand and recover from the shocks of a changing climate.
