Weather patterns highlight need for increased risk management
South Africa has been experiencing changing weather patterns which have increased the risk carried by homeowners as well as insurers. Heavy rains around the country caused major flooding in some areas which resulted in significant damage. But perhaps the worst hit areas were Limpopo and Mpumalanga where certain parts of the Kruger National Park had to be evacuated due to flooding and the Klein Kariba holiday resort was completely destroyed.
The city of Johannesburg came to a standstill as a result of the heavy rain experienced in the region at the beginning of March, which was more than double the usual average for the month in less than two weeks.
According to John Kerby, Corporate Accounts Director at RBS, these erratic weather patterns highlight the need for businesses across the country to implement stringent risk management policies, as it seems that traditional seasonal weather patterns are no longer dependable.
Change your view on freak events
Kerby says that many business owners suffered millions of rand's worth of loss as a result of damage to property, loss of income due to business interruption and vehicle and fleet damage. "Should these businesses not have the correct cover in place, it is unlikely that they are able to survive these losses.”
"The recent unexpected and extreme weather patterns also highlighted the range of risks businesses are exposed to daily. These risks are extremely diverse and specialised, depending on the sector in which a business operates in. Such incidences have resulted in risk management taking on a significantly new level of importance, especially as the country continues to witness changing weather patterns,” says Kerby.
He also mentioned that the Western Cape will soon face the usual extreme winter conditions. It is therefore of utmost importance for businesses in the area to review insurance and risk management policies, in order to avoid the extreme losses that their counterparts in Gauteng recently experienced.
Increase the focus and depth of your cover
Kerby explains that there are some instances that a business is unable to manage or predict the risks over a period of time, and this then calls for the business to cover every possible eventuality. This includes considering the focus and depth of the cover needed.
As an example, Kerby points to a recent announcement by Sun International during this period that due to the on-going rain and flash floods experienced at Sun City, the Gary Player Country Club, as well as the Lost City Golf Course were to remain closed for seven days due to extensive structural damage to both courses.
"In the case of a golf course, a loss of revenue would be experienced from having to both refund players for games booked that week, as well as not being able to accept new business. There could also be knock-on losses for associated facilities, such as for the establishment's accommodation and food and beverage departments as a result of this occurrence. The establishment would also face the cost of having to repair property damage sustained by the weather,” says Kerby.
He adds that regardless of the business's field, poor risk management policies may leave an organisation vulnerable to major long-term setbacks, or even worse, insolvency and bankruptcy.
"Incorrectly structured policies and incorrect business interruption calculations could mean the business is underinsured, so it is advised that businesses consult an expert when putting these policies in place,” adds Kerby.
He concludes by saying that while a business may manage to survive an initial loss as a result of business interruption, continued loss of revenue from the second, or perhaps third interruption could be detrimental to revenues. "It is crucial that the correct policies are put in place by businesses, regardless of the sector they operate in or the size of the business, and that the correct calculations are done in terms of depth and focus to ensure that the business is sufficiently covered.”
Risk management in the global space
This leaves insurers in an increasingly worrying situation as they seek to manage costs within the industry. Global insurers who operate within the South African market indicate that this is also a significant consideration in the global space, which may give them the inside edge over local insurers when it comes to disaster management.
According to the latest sigma study, which is commissioned by Swiss RE, global insured losses from natural catastrophes and man-made disasters were $45 billion in 2013, down from $81 billion in 2012. Of the 2013 insured losses, $37 billion were generated by natural catastrophes, with hail in Europe and floods in many regions being the main drivers.
Total economic losses from catastrophic events were $140 billion, down from $196 billion in 2012 and well below the 10-year average of $190 billion. The number of victims in disaster events grew to around 26 000 in 2013 from 14 000 the previous year.
Editor's Thoughts:
Anticipation is a key aspect to managing the risks caused by natural events. It seems as if there is an increased need for brokers to be engaging with policyholders that natural events are becoming an increasing possibility rather than a freak event. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
