Extreme weather gives insurers a chance to shine

The hail storm that struck the eastern parts of Johannesburg on Saturday 20 October is described as one of the worst on record. Francois Potgieter, Chief Operating Officer at Hollard, says that the insurer received more hail claims on Monday, 22 October,

“We had to extend our working hours to deal with the deluge of claims,” he says. “While we cannot comment on specific instances we can confirm that the storm resulted in a number of cars being written off… We will process and pay these claims and make sure that our policyholders are restored to their pre-storm position”. Hail is only one of the weather-related catastrophes insurers have had to respond to in recent weeks.

Large insurers affected across the board

“We have been inundated with claims since the first day of the disastrous Eastern Cape floods and the dreadful Johannesburg hail storms,” says Heidi Dias, Head of Claims at Mutual & Federal. The insurer said it was working around the clock to ensure that each and every claim was handled as a matter of urgency.

Meanwhile, Santam estimated the value of storm damage at R35 million (by 26 October 2012) with close to 400 claims coming from Port Elizabeth for storm damage and close to 2000 claims from Gauteng for hail damage to cars and homes. “The bulk of the claims in Gauteng came from the East Rand, the area which was hit hardest by the recent hail storm,” says Fanus Coetzee, Head of Adjustment Services at Santam. Can the Eastern Cape floods and Gauteng hail storms be linked to global climate change? And if so, do local insurer statistics reflect a gradual increase in the number of freak weather events?

Potgieter says that there is no discernible pattern in Hollard’s hail damage claim statistics between 2000 and 2008. However, the insurer has noticed a steady increase since. “This is in line with an increase in natural disasters worldwide,” he says. What financial advisers and their policyholders will want to know is how extreme weather events such as the 20 October hail storm will impact their premiums going forward.

The impact of freak weather on personal lines premiums

It is unlikely that the storm will have a material impact on individual policies. “Hollard is there to pay claims and a freak storm like this is exactly the reason one takes out insurance,” says Potgieter. “Whether or not other insurers will increase premiums depends on how well they are protected against catastrophe”. He adds that in the unlikely event that an insurer had inappropriate reinsurance it would have to foot a major part of the hail damage claims and might end up having to increase rates. Assuming that insurers were appropriately reinsured (the most likely scenario) they can expect an increase in reinsurance rates in the next year or so, but this increase is unlikely to have a material effect on insurers’ pricing.

Insurers and their reinsurance partners have limited defences against extreme weather. Among the developing trends is the use of advanced predictive modelling to underwrite risks such as fire, floods and severe storms (including lightning and hail). “Hollard does use hail models to predict hail by region over a long period of time,” says Potgieter. This involves assigning a hail frequency “rating” for each geographical area when calculating motor premium.

There is not much an insured can do to avoid a sudden hail storm. Hollard suggest that drivers pay close attention to weather forecasts and try to stay off the road if the weather looks ominous. Santam offers some pointers for motor and homeowners to mitigate severe storm damage too… They suggest that motorists:

· Pay close attention to weather reports to lessen the risk of being caught in a hail storm while driving;

· Find shelter such as a petrol station, shopping mall parking area or even a bridge in the event a hail storm strikes;

· Pull over to a safe area at the side of the road (in the event no cover is available) because hail causes more damage to a moving vehicle; and

· Cover their vehicles with thick blankets to minimise the impact of hailstones in the event the vehicles are not parked undercover.

The insurer’s advice to homeowners is to:

· Clear gutters of leaves, twigs and any other debris regularly as hail takes a while to melt and an overflowing gutter could lead to a leaking roof and further damage;

· Fit quality gutters that are able to withstand increased water flow during rainfall and hail storms; and

· In the case of new builds, opt for impact-resistant roofing to prevent serious hail or storm damage to the roof structure.

Insurance remains your best defence against weather catastrophe

But the best protection against natural disaster is comprehensive personal lines insurance. “The most important advice we can give is to ensure that you are fully covered against such eventualities,” concludes Potgieter. “Insurance is there to protect you against the financial implications of such occurrences, so make sure that your premiums are up to date and that your cover is as comprehensive as you can afford”.

Editor’s thoughts: We have heard numerous stories about the damage caused by the 20 October hail storm and have seen just as many photographs to back up these tales. There is no doubt that both the insured and uninsured suffered tremendous losses in each region. At least the insured have a chance at compensation! Were any of your clients caught in the Eastern Cape floods or Gauteng hail storms? If yes, are you pleased with how their personal lines insurers performed? Please add your comment or send it to [email protected]

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