SA insurers ignore changing weather conditions at their peril
Unpredictable weather patterns are becoming increasingly prevalent in parts of South Africa, with freak tornadoes having hit the Free State in June, resulting in the death of 8 people, as well as extreme storms and floods in other parts of the country. Ye
According to Lisa Teixeira at CIB Insurance Administrators (CIB), the largely insignificant impact that natural catastrophe claims have had on the overall claims experience in South Africa means that many insurers still do not consider their exposure to them in their premiums. “The more sophisticated insurers look at the risk they are insuring and act to either control their exposure with appropriate reinsurance or consider the potential impact in terms of the premium and excess payable.”
She says South Africa is exposed to a variety of natural catastrophes – including storms, floods and seismic activity such as earthquakes. “Historically the losses suffered due to natural catastrophes have not been as extensive in South Africa, as say the US. However this does not mean that we are immune, as tropical storm Irina and the flooding in Mpumalanga and Limpopo have demonstrated.
Teixeira says that while it is not yet common practice in South Africa to exclude certain cover it is certainly possible that this will start to happen more often if severe or unpredictable weather patterns continue to occur in the same areas. “For example, we have had severe flooding for two years in a row and if this continues to take place in the same areas then we will most likely see some insurers moving to restrict certain cover.
As a result of South African insurers not opting to restrict cover, Lisa Teixeira says it has become very important that they do seek ways to mitigate their risks via other methods. One of these is capping their exposure, by limiting the maximum loss that can be incurred per item, per policy and per event.
For local municipalities in particular, which are often left with hefty clean-up bills in the event of a natural disaster, it is also important to ensure they do not allow construction below known flood-lines and that they uphold building quality standards.
A further effective risk mitigation measure is to spread the risk geographically. South Africa faces a range of environmental risks depending on the geographical location. For example, Cape Town and Durban are exposed to seismic risk (tectonic origin) while Johannesburg’s exposure is often based on mining-related seismic activity.
Another risk that is relevant for insurers but is often not considered is that of hail. One of the hail-belts runs from south to north through Gauteng, roughly along the line of the N1 highway, with a high risk time for such hail storms being in the afternoon, which presents its own set of concerns for insurers and motorists.
South Africa is still relatively immune to the large scale losses that have occurred as a result of natural disasters in regions such as the US, Japan or New Zealand, but the increasing frequency with which such events are occurring means it is critical for insurers to fully assess the risk they are taking on and for consumers to be mindful of the specific risks they face in different locations,” concludes Teixeira.
