Insurance claims and payouts are soaring as havoc wreaked by climate change in the form of violent storms, rain and hail continues to increase.
In March, late summer rain saw hailstones hammering down on people’s cars and homes, so local insurer Santam shipped in 25 extra “hail pushing technicians” – experts at fixing dents – from around the world for a month.
They were needed after the insurer received 2 000 claims for hail damage to cars and homes in Gauteng alone during a 48-hour period of storms. Four hundred more claims were lodged in Port Elizabeth, with the cost to Santam from claims estimated at R35-million.
Hailstones as big as 7cm in diameter had fallen, and the insurer said these could cause “irreparable” damage to cars.
Johannesburg mayor Parks Tau said at a climate change conference in Sandton last month that the devastation caused by the rain was owed to climate change. “We are seeing a clear shift in our summer season, where it lasts longer and we get more frequent and damaging storms.”
The city is already 0.8˚C warmer than half a decade ago, with predictions that it will be up to 6˚C warmer by the middle of the century. “None of our infrastructure is ready to handle this,” said Tau.
Vanetia Thakule, a senior forecaster at the South African Weather Service, said at the time that “those are the types of thunderstorms we will be getting in the summer”.
Johannesburg experienced its entire annual average rainfall for March in one week.
Standard Bank’s insurance division had a 402% increase in storm-related claims for March. As a whole, the insurance industry received 56% more claims this March than for March last year, the bank said.
The environment department’s own plans say the interior of the country will face increased temperatures and, because of this, a change in rainfall patterns. This will see a greater frequency of severe storms with hail and lightning, and more damage. Along the coast, rising sea levels – the United Nations’ environment body predicts a rise of as much as a metre by 2100 – will batter the country’s other major cities. Storm surges will travel further into the cities and cause damage where property is the most expensive.
All this damage will have to be covered by the insurance industry and, rather than leaving it to catch them unprepared, they are already raising premiums and excess fees.
Last week the local branch of global insurer AON told customers that their premiums would be increasing. Typically, excess has increased by up to 20%. This was in response to a trend of increasing claims being lodged with short-term insurers, it said. “This is directly attributable to the high incidence of weather-related claims, and the depreciation of the rand.”
Other insurers have undertaken similar adjustments, with Mutual & Federal saying the past two years were “unexpectedly bad”. “Another trend we are picking up in personal lines is the increase in the frequency of damage caused by extreme weather,” said Coenraad de Jager, its executive of personal lines.
The annual KPMG insurance survey said last year that catastrophic payouts had significantly affected the short-term insurance industry locally. “Catastrophic events are predicted to continue as a result of climate change and extreme weather events,” it said.
Growing climate change has also seen local insurers join the industry’s global body, ClimateWise, the body representing insurers at international climate negotiations. It said the number of weather-related catastrophes had tripled since the 1980s.
Research published in the journal Nature last year said climate change costs the world economy $1.2-trillion a year. Loss of productivity and damage to property was the main part of this, with the insurance industry having to pick up the tab.
This has prompted Lloyds, the largest and oldest insurance market in the world, to call on insurers to include climate change in their projections. Most insurers were investing in the future without factoring in climate change, it said.
With global climate negotiations seeking to cut back massively on fossil fuels, this meant that up to 80% of fossil fuels would have to be left in the ground. Insurers that did not factor this in would not be able to cover claims, it said.
In its Catastrophic Modelling and Climate Change research paper last year, Lloyds said the industry faces a huge problem with how climate change will create more extreme weather events.
The past few years had seen events such as Superstorm Sandy, which hit the eastern seaboard of the United States. The damage to New York was increased by 30% because sea levels there were 20cm higher than historical levels, thanks to climate change, it said. Sandy cost the industry $25-billion, making it the second-most expensive storm after hurricane Katrina hit New Orleans in 2005. Claims amounted to payouts of $300-million for fine art lost in expensive beachfront homes alone.
The World Bank’s authoritative report from 2013 on the insurance industry and climate change said the greatest risk was in developing countries. Local companies were not big enough to face repeated catastrophic events – a hallmark of climate change, when events that would happen once a century occur once a decade, or even more frequently.
Countries therefore have to take money for other projects out of their fiscus, or borrow. The report warned that when catastrophe becomes the “new normal” it will be hard for insurance companies to get back on their feet.
The South African Insurance Association said the impact of climate change on the local industry was “starting to become significant”. It has recommended that insurers invest in renewable energy and technology. This would lower carbon emissions and the impact of climate change. It would put their money in industries that would survive if there was a cut-back in fossil fuels from international climate negotiations.
Peter Hoppe, head of Munich Re’s corporate climate centre, said: “The insurance industry is directly affected [by climate change] and therefore assumes a leading role in devising solutions.”