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The escalation of climate-related claims… what to do, what to do?

26 March 2024 Dr Bongani Mageba, CEO of TIH Advisory
Dr Bongani Mageba

Dr Bongani Mageba

The primary duty of a short-term insurance financial adviser is to offer professional expert advice on how best to protect a client’s assets. Second to that is the task of ensuring claims are settled quickly and fairly. However, in the current milieu of rising natural disaster claims, this task is far from simple.

The risk of natural disasters 

According to the EU's Copernicus climate service, global temperatures soared to 1.52°C above pre-industrial levels between February 2023 and January 2024, surpassing previous records. This was due to an El Niño season, causing warmer and drier conditions in areas that receive summer rainfall. It seems that South Africa was largely spared from natural disasters during this period with only isolated incidents of floods and fire.

The world now faces a transition from a strong El Niño to a mild La Niña, promising wetter weather and it needs to be seen whether South Africa could escape without any major disasters. What is evident is that these climate shifts have profound implications for individuals, businesses, and the insurance industry. 

The influence of natural disasters on the claims landscape 

There has been a notable upward shift in climate-related claims as monitored by TIH.  But more importantly if one compares TIH claim trends with those of previous years, data shows not only an increase in climate-related claims but more importantly a significant shift in seasonal claims and severity. The South African storm season is usually between October and January but in 2023 TIH tracked a third more storm and hail-related claims in April, June, and July than ever before. In April specifically, the group saw a doubling of hail claims. 

During the expected storm period there was a marked average increase from the previous year of double the number of weather-related claims, when speaking about September to November in particular. In this period hail claims almost tripled compared to that of previous years. This means that there were both increases in storm claims around the mid-year mark and also at the end of the 2023 annual, indicating a seasonal discord. 

Adapting Risk Management Strategies 

In South Africa, climate-related incidents pose a dual risk to economic growth. An estimate by the South African Reserve Bank sets the cost of damage to infrastructure of the 2022 KZN floods, at around R17 billion. Beyond asset loss and property damage, natural disasters disrupt business operations and supply chains. 

That is why insurers and financial advisers’ risk expertise and their unique ability to protect people and businesses are now essential. Even small preventative actions within the financial advice process can positively impact the frequency of claims. 

Crafting Risk Management Solutions 

Advisers must conduct comprehensive risk assessments to pinpoint vulnerabilities and tailor strategies accordingly. Encouraging clients to fortify their properties against potential disasters is crucial. This includes investing in preventive measures like storm shutters, reinforced roofs, and on-site backup power solutions. 

Collaborating on disaster recovery plans is essential. These should outline specific steps before, during, and after a natural disaster, such as evacuation and emergency procedures and communication and claim protocols. 

Ensuring Adequate Coverage

Regularly reviewing and updating insurance policies is paramount to ensure coverage aligns with evolving risks. Advisers should educate clients on the limitations of standard policies and recommend supplemental coverage where necessary. 

Staying informed and proactive 

Most insurers keep clients abreast of any extreme weather events to facilitate timely action. Actions taken in these circumstances can go a long way in minimising claims frequency. 

Through collaborative risk management efforts and continuous monitoring of evolving risks, advisers play a vital role in building resilience and ensuring long-term stability in the face of environmental challenges. 

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