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Risk Management’s current focus on fire, neglects severe climate change exposures

18 January 2024 Riskonet

Flooding in KZN has once again led to tragic loss of life and substantial damage to infrastructure. This, says Volker von Widdern, Principal of Strategic Risk at risk consultancy Riskonet Africa, could have been avoided.

According to Von Widdern, risk modelling for these events is based on outdated data that needs urgent re-
Evaluation.

“We’re in the third week of January and we’ve already experienced two severe weather events – the second being Cyclone Belal in Mauritius which has also led to the death of at least one person and caused severe damage to infrastructure,” says Von Widdern.

“Flood risks form part of what we call ‘special risks’” he explains. “Awareness of the impacts of these risks in most property insurance policies on organisations is inadequate. Fire was the main risk exposure, whereas the impacts of storms or special risks are likely to exceed fire risk exposures soon. Insurers need to shift focus.”
Von Widdern explains that insurers have been modelling the effects of Climate Change for over a decade and are becoming concerned about the increased severity and frequency of “100-year” extreme weather events – events that are so extreme that they should only have a 1% chance of occurring in a year.

The data sources that insurers used to evaluate the impact of these events across areas with high concentrations of insured clients are outdated as many properties were constructed 25 – 50 years ago according to flood lines that are no longer relevant.

“The concentration of developments, inadequate planning for stormwater capacity required for current storms, strength of roof structures against wind and hail accumulation and ageing buildings create escalating
exposures to severe wind, hail and water accumulation from downpours,” explains Von Widdern.

As these weather events become more frequent and severe, investors and lenders in the property sector are at substantial risk as insurers have substantially limited cover for special risks to about 20% of the total sum insured.

The solution, says Von Widdern, lies in the early assessment of special risks which provides the opportunity for owners, lessors, and lessees to collaborate on enhanced infrastructure plans.

“These plans and independent assessment of such facilities may improve the risk appetite of insurers at specific locations. In any event “storm risk assessments” will be needed for top-up cover when accessing reinsurance markets,” he says. As an example, Von Widdern cites Riskonet’s addition of storm risk assessments to
property risk surveys and collaboration with actuaries to assess the impact of severe weather events.

Von Widdern warns that as the effects of climate change worsen, It is important that insurers and their clients commit to regular, comprehensive assessments on special risk exposures in addition to standard the fire and peril risk assessments.

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