Extreme weather: Are local insurers offering adequate cover?

Peter Olyott, CEO of Indwe Broker Holdings.

Severe weather is effecting the insurance industry, even when there is no physical damage to a business.

Extreme weather events have increased dramatically in the past 20 years, with South Africans experiencing bigger hailstorms, heavier rains and increased flooding, which have caused severe damage to cars, homes and other property. However, not all loss relates to physical loss or damage and this is challenging traditional thinking around insurance.

Extreme weather insurance (other than in the agricultural sector) is relatively rare in South Africa, but it is becoming increasingly common in Europe. This involves instances where severe weather is having a significant impact on businesses, but no actual physical loss or damage has occurred. Specialist insurers have been providing cover, particularly in the food, leisure and entertainment industries, for cancelled events, reduction in patrons at pubs and restaurants, and even reduced crowds at West End and Broadway productions.

“Event Insurance, as it is perhaps too broadly termed in the Lloyds market, is one of the faster growing insurance segments,” according to Peter Olyott, CEO of Indwe Broker Holdings. “This is spurred on by the increasing costs associated in hosting events, or the need to sustain turnovers to pay for increasingly valuable retail floor space,” he explains.

Outright cancellations of events are rare in South Africa, but adverse weather does create additional costs and it can result in a reduction in revenue for the organisers, hosts and even providers of accommodation. “There are owners of open-air restaurants who dread an unseasonal cold snap or deluge, and organisers of outdoor concerts and sports competitions who fear the cancellation costs when severe weather prevents those activities from taking place,” clarifies Olyott.

Given the unpredictable and changing weather patterns seen around the world, the insurance industry needs to adapt, and innovative local insurers should give serious consideration to providing such cover to businesses, whose livelihoods are dependent on the vagaries of the weather.