South Africa – Hail storms, severe flooding, hurricanes, heat waves, fires, earthquakes and droughts – it would appear as if these severe weather events are becoming the norm. With 2017 being the second-most expensive year on record for disaster losses, climate change and the resultant loss and damage are having a very real impact on the insurance industry.
The Economist reported that Munich Re released figures on 4 January 2018 indicating that global, inflation-adjusted insured catastrophe losses (including uninsured losses) reached a record high of $135 billion. Total losses (including uninsured losses) amounted to $330 billion.
In 2011 record losses of $254 billion were reached, however these were due largely to the earthquake and tsunami that hit Japan, whilst the 2017 losses emanated mainly from extreme weather conditions.
Closer to home, following the Knysna fires, flooding in Gauteng and KwaZulu-Natal, as well as the drought conditions in the Western and Eastern Cape, insurers have changed their attitude with regard to their risk appetite and are much more weary before accepting a risk.
“Insurance companies are generally vocal about the threat of climate change, however the traditional response to greater levels of risk is to raise premiums, transfer exposure to others or withdraw cover,” says Daléne Delport, account manager at Acuideas. “These methods will not deal with the risks of global warming or reduce the protection gap. Insurance companies need to manage society’s exposure to climate change risks if they want to reduce the protection gap.”
Brokers need to ensure that their clients are aware of the changing attitude of insurers, to prepare their clients for possible premium increases, potential declining of risks and/or very strict risk mitigating measures being imposed by insurers prior to accepting risks. Brokers can also recommend “de-risking” measures, where a client is guided in taking practical steps to reduce risk.
“If we consider fire as the risk, we would suggest that a property owner follow easy-to-implement actions, such as undertaking an annual fire hazard assessment, installing a sprinkler system, conducting six-monthly check-ups of fire extinguishers, getting an electrician to check wiring for overloading, identifying the location of the closest fire hydrant and checking the water pressure of outside taps,” says Delport.
Climate change presents many risks to the insurance industry but it also brings with it fresh opportunities. For a broker it could mean potential new business, where a client’s current broker might be lacking in taking pro-active measures to engage with and prepare clients in this regard.
To deal with the hardening insurance market, the Australian and New Zealand Institute of Insurance and Finance has shared these seven strategy tips with their members:
- Communicate with clients
- Focus on the claims-paying ability of insurers
- Think beyond price
- Mentor younger industry professionals
- Stay connected to markets
- Use technology wisely