The time is NOW… before the next disaster tests our resilience

At the recent InsureTalk conference, Hayley Clarke, Chief Actuarial Officer at Sasria SOC Ltd, delivered a sobering yet solutions-oriented talk on the evolving nature of disaster risk and the widening protection gap, particularly in South Africa.

With climate change accelerating the frequency and intensity of secondary perils like floods and hailstorms, Clarke argued that now is the time for the insurance sector, governments, and communities to rethink how we price risk, design products, and plan for economic resilience.

Secondary perils on the rise

Clarke began by highlighting a trend that’s become increasingly clear over the past decade: secondary perils - such as floods, wildfires, and hail - are causing more cumulative damage than the traditionally dominant primary perils like earthquakes or cyclones. While the industry lacks a universally accepted definition separating primary from secondary risks, the distinction largely rests on the frequency and scale of events. Primary perils are rare but catastrophic, while secondary perils occur more often, with damage that adds up substantially over time.

“In terms of cost and disruption, the secondary perils are becoming a larger piece of the puzzle,” Clarke noted. “These events may be smaller individually, but the frequency is what’s driving up losses, and that requires a different approach to resilience.”

The protection gap: 70% of losses uninsured

Clarke emphasised the concept of the protection gap - the difference between total economic losses and those that are insured. Since 2000, only around 30% of global disaster-related losses have been covered by insurance. This leaves a staggering 70% gap, with the shortfall most severe in developing regions such as Africa, Latin America, and Asia.

In South Africa, the protection gap is influenced by several interlinked factors:

• Affordability: High levels of poverty and unemployment limit access to even basic insurance products.
• Product-market mismatch: Many communities lack access to suitable insurance products that meet their needs or address the risks they face.
• Limited awareness and education: There is often a lack of understanding around both the risks and the value of insurance.
• Mistrust in insurers: Past experiences and perceptions of the industry contribute to low uptake.
• Expectation of government bailouts: Many communities believe the government will step in post-disaster, discouraging proactive risk management.

“Without trust, understanding, or suitable offerings, insurance cannot play the role it's designed to play in recovery and resilience,” Clarke explained.

Insurance as a macroeconomic tool

One of the more powerful illustrations Clarke provided was from New Zealand’s 2011 earthquake, where a significant portion of losses were insured and backed by international reinsurers. The rapid injection of capital helped not just with rebuilding but also stimulated the national economy, enabling a quicker recovery.

In contrast, countries with low insurance penetration suffer delayed recovery. Governments are often forced to reallocate funds from critical services like education, healthcare, or infrastructure development to pay for disaster relief. This has long-term macroeconomic consequences, including slowing down development and increasing debt.

“Insurance isn’t just about individual payouts - it’s a buffer for the entire economy,” Clarke said. “It protects public finances and supports national development goals.”

Government’s role in risk pooling

When insurance premiums are risk-based, high-risk properties often get priced out of the market. This is where government intervention becomes essential, ensuring broader risk pooling to make coverage viable for all.

In South Africa, Sasria currently operates a civil unrest risk pool, but there’s no equivalent pool for natural disasters. Clarke believes this is a critical gap that needs to be filled, particularly as extreme weather events become more common.

“Disasters affect more than just individuals or businesses—they impact public finances, credit ratings, and national stability. We need systemic solutions,” she urged.

Innovative solutions: from parametric covers to social security integration

Clarke also discussed several forward-looking solutions to tackle disaster risk and close the protection gap:

1. Parametric insurance - One innovation gaining traction is parametric insurance. Unlike traditional indemnity policies, parametric cover pays out based on predefined triggers - like a certain level of rainfall or wind speed - regardless of the actual loss incurred. This allows for rapid disbursement of funds, helping communities and governments act early to mitigate the impact. “For example, in the case of drought affecting livestock, early payouts could be used to keep animals alive and maintain livelihoods,” Clarke explained. “It’s about responding before the damage becomes irreversible.”
2. National and regional risk pools - Pooling risk across wider geographies or sectors can help spread costs and improve affordability. Clarke mentioned the success of regional risk pools in other parts of the world and emphasised the need for similar frameworks in South Africa. “Risk pools allow us to create scalable safety nets that transfer risk into international financial markets and make coverage more affordable and sustainable,” she said.
3. Integrating disaster cover into social security - One particularly promising avenue Clarke highlighted is the integration of disaster risk insurance with social protection schemes. Some countries have experimented with embedding basic disaster coverage within existing welfare systems, helping ensure that vulnerable populations are covered without needing to navigate complex insurance markets. “This approach has potential in South Africa, where social security already plays a major role in people’s lives. It's about meeting people where they are,” Clarke noted.

Data and risk understanding

Clarke stressed that understanding risk through data and modelling remains the foundation for all of these solutions. Investments in catastrophe modelling, climate analytics, and geospatial tools are necessary to identify exposure, forecast impact, and price products fairly.

“Good data allows us to plan better, respond faster, and build smarter products. Without it, we’re just guessing,” she warned.

A call to action

In closing, Clarke expressed cautious optimism. The South African government is already involved in projects to explore some of these innovations, signalling growing awareness of disaster risk as a macroeconomic and developmental issue.

However, she stressed that progress remains slow and that much of the conversation still revolves around potential solutions rather than implemented ones.

“I hope that next time I speak to this audience, I’ll be talking about what’s working on the ground - not just what could work,” Clarke said, wrapping up her session.

Writer’s Thoughts

For South Africa’s insurance sector, the challenge is clear: closing the protection gap requires innovation, collaboration, and a stronger alignment between risk modelling, product design, and public policy. As Clarke emphasised, the time to shift from conversation to implementation is now - before the next disaster tests our resilience. Do you agree? Please comment below, interact with us on X at @fanews_online or email me your thoughts at [email protected].

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