Storm brewing in insurance sector

EXTREME WEATHER EVENTS INCREASE Fundamental change in overall level of catastrophe claims in past six years.

As extreme weather events rise, damages claims will follow suit.

Whether you believe in man-made climate change theories or not, what is undeniable is that extreme weather events are on the increase.

We don’t have to look too far for evidence. In South Africa alone, there were three main catastrophic events over the past year: the fires in Knysna, the drought in the Western Cape, and storms in Gauteng and KwaZulu-Natal. The average for much of the last decade has been one such event a year.

JSE-listed Santam is a reasonable proxy for the short-term insurance sector. There was a marked spike in catastrophe claims in 2017, relating mainly to the aforementioned floods, storms and fires.

The insurer incurred gross claims of R823 million from the Knysna and Western Cape fires, and R1.1 billion from storms in KwaZulu-Natal and Gauteng.

There has also been a trend since 2012 clearly showing a fundamental change in the overall level of catastrophe claims in the past six years. Something is clearly going on with the weather. Nor are these trends confined to SA.

Last year was the worst on record for weather-related insurance losses globally, according to global risk and insurance giant Aon. Its Weather, Climate and Catastrophe Insight 2017 reports that weather-related losses totalled US$344 billion, more than double the previous year.

“The third quarter of 2017 was the second-costliest quarter ever registered at US$261 billion due to catastrophic damage from a trio of major hurricanes and flooding across Asia,” reads the report.

At a recent panel discussion on how extreme weather is affecting insurers hosted by Norton Rose Fulbright in Johannesburg, Professor Coleen Vogel of the Global Change Institute at Wits University presented evidence that Africa is experiencing more extreme weather changes than the rest of the world: average temperatures on the continent are rising 0.11ºC each decade, double the rate of the rest of the world.

“With an average two-degree rise in temperatures, you have problems. If it hits five degrees, we’re in real trouble,” she said.

These temperature rises create feedback loops that impact drainage, wetland systems and infrastructure. Urban overcrowding and bad construction practices, such as dumping rubble alongside rivers, aggravate an already fragile natural balance.

Vogel said extreme rainfall was projected to increase in southern Africa, with more intense thunderstorms that will degrade roads and dwellings.

Michael Chronis, director of Norton Rose Fulbright, points out that engineers may have to look at how they design roads and other infrastructure in light of extreme weather statistics. “We are looking at an increase in the number and the value of claims based on these trends,” he says.

Though extreme weather events might be localised, what happens in Europe or the US impacts the price of insurance in SA, since all insurers are required to purchase reinsurance, which reflects global not local events.

With an average two-degree rise in temperatures, you have problems. If it hits five degrees, we’re in real trouble. Prof Coleen Vogel Global Change Institute at Wits university