Covid-19 is a rare opportunity to adapt and reconsider possibilities |
THE STRONG consensus of opinion in the scientific community is that the climate is changing, and global temperatures are rising.
Though individual weather events cannot be attributed directly to climate change, the overall trends point to an increase in global temperatures and extreme weather events. Climate change has already caused the earth’s temperature to rise by more than 1degree above pre-industrial levels.
There is clear evidence that climate change is causing more frequent severe weather events, from floods to fires to droughts, leading to higher and more volatile weather-related insurance claims. We’ve had more frequent floods and fires, especially in the last 10 years, with the Knysna fires in 2017 being our worst ever weather catastrophe, as well as several floods and hailstorms over the past three years in KwaZulu-Natal, Gauteng and Limpopo. Not to mention severe drought and the threat of “Day Zero” in Cape Town in 2018/19. We see this trend even more alarmingly on a global scale, for example recent wildfires and severe weather events in Australia and California.
Risk to insurance industry
In South Africa, physical losses are exacerbated by declining infrastructure in municipalities, for example inadequately equipped fire brigades and poorly maintained storm water drains.
The greatest risk is that the insurance industry won’t be able to keep up with increasing weather claims; insurance premiums will spiral; and we may need to remove/reduce cover in some areas. This is already happening on a wider scale in the US and France, where the governments are needing to step in with special catastrophe insurance pools. We believe we have a responsibility to help our customers and communities reduce the impact of climate change, and to underwrite responsibly.
Insurance industry needs to respond
The insurance industry has responded robustly to the Covid-19 pandemic and it needs to meet the climate change challenge similarly head-on. The industry needs to have the relevant infrastructure in place to measure climate change and manage its impact. To achieve this, data is key. We need:
■ Accurate data on our existing exposures and their location.
■ As well as data and models on the impact of climate perils by location.
■ For example, we need to understand which properties we insure in coastal areas and which of those areas are at highest risk of flooding, as well as how that flood risk will increase over time, and possibly destroy infrastructure and interrupt business.
■ Despite historical data, a lot of climate science research and expert judgement will be required to capture the possible future impacts of climate change.
■ We also need to run comprehensive scenario tests to understand and plan for the impact of climate change. In addition to managing climate risk, we need to look at our own responsibilities to society.
As the Old Mutual Group, we are also adapting our investment philosophy to be more environmentally friendly. For example, we’ve made investment of R34.5bn towards clean energy projects across Africa, provided developmental assistance to vulnerable areas which are most affected by climate change and are formalising our commitment by launching our Initial Public Coal position this year.
The Covid-19 pandemic has given us a rare opportunity to recalibrate our priorities and reconsider our possibilities. We have learnt from the Covid-19 crisis that concerted action can make a real difference. We see photos of polluted beaches, canals, and cities around the world which, within weeks of lockdown, returned to their natural beauty, teeming with wildlife, inspiring us to renew focus on climate change.