Climate change and its impact on the insurance industry

Peter Olyott of Indwe Risk Services.

Insurance claims and pay-outs soar as climate change wreaks havoc in the form of devastating storms.

As the effects of climate change are becoming self-evident, the impact on our local insurance industry is significant. In March of this year, a series of hailstorms in the late summer saw massive hailstones hammering down on people’s cars and homes. During this time, insurers received thousands of claims for hail damage to cars and homes in Gauteng alone during a 48-hour period, bringing the costs to millions of rands.

Johannesburg mayor Parks Tau said at a climate change conference in Sandton earlier this year that the devastation caused by the rain was owed to climate change. “We are seeing a clear shift in our summer season, where it lasts longer and we get more frequent and damaging storms.” The city is 0.8?C warmer than half a decade ago, with predictions that it will be up to 6?C warmer by the middle of the century.

“As a result of the increased temperatures and other climate changes, the storms we have been seeing of late, are likely to be a common occurrence. We will see a greater frequency of severe storms with hail and lightning, and more damage,” says Peter Olyott of Indwe Risk Services. Vanetia Thakule, a senior forecaster at the South African Weather Service, concurs: “Those are the types of thunderstorms we will be getting in the summer.”

Storm-related claims

Research published in the journal Nature last year said climate change costs the world economy $1.2-trillion a year. Loss of productivity and damage to property was the main part of this, with the insurance industry having to pick up the tab. This has prompted Lloyds, the largest and oldest insurance market in the world, to call on insurers to include climate change in their projections. Most insurers were investing in the future without factoring in climate change, it said. The South African Insurance Association said the impact of climate change on the local industry was “starting to become significant”.

The insurance industry received 56% more claims this March than for March last year. All this damage will have to be covered by the industry and it is possible that they will have to raise premiums and excess fees to do so. “This is directly attributable to the high incidence of weather-related claims,” Olyott explains.

With the summer heat approaching and the likelihood of storms on the increase, it is essential that people are adequately insured. “Hailstones as big as 5cm in diameter are now a common occurence, and something that could cause irreparable damage to cars,” says Olyott. “It is therefore essential that home and car owners check their policies and speak to their brokers to ensure they are adequately covered this season,” he concludes.