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Johannesburg home and car owners were hit by another bout of bad weather this week, leaving insurers braced for a slew of claims.
A hailstorm swept through parts of Johannesburg on Monday, causing damage to homes and vehicles. Although it is too soon to know the extent of the destruction — and the blow to insurers — weather-related claims have emerged as a key risk to the industry.
Earlier this week, Santam confirmed it had received reports of damage to policyholders in areas such as the Johannesburg city centre, Sandton, Midrand and parts of Soweto.
“Because of the nature of a claims process, it is too early to quantify the extent of the damage or how much claims could possibly amount to,” Santam’s executive head of claims, Fanus Coetzee, said in a statement.
“What we do know however is that the frequency and severity of extreme weather events is increasing and we would advise policyholders in affected areas to take precautions where possible.”
At the end of August, Santam noted the effect of adverse weather on its bottom line.
Although South Africa’s largest short-term insurer fared better than it did in 2022 — reporting a 146% jump in headline earnings per share for the six months ended 30 June 2023 — the company flagged several ongoing problems. These include the catastrophic flooding in the Western Cape in June, as well as the high cost of living, power surge claims and a weakened exchange rate.
According to Santam’s interim results, the Western Cape floods resulted in a negative claims experience of R150 million. “Climate change poses a key risk to the group, potentially threatening the insurability of various risks where losses become increasingly prevalent.”
Hollard also said it was too early to put a number on the damage, noting that claims often take more than a week to be reported.
Warwick Bloom, head of group strategic communications at Hollard, said: “Hailstorms are a regular source of property and vehicle damage claims in South Africa. While last night’s storm was intense, we have experienced more severe thunderstorms in the past and we expect more severe events in the future.”
Bloom added that weather-related claims have had an effect on insurers in 2023, but are not significantly out of line with expectations.
In 2022, flooding in KwaZulu-Natal caused widespread damage, with research showing that the natural disaster was the most catastrophic recorded in the province’s history.
Stefan Grab, one of the researchers who constructed a geographical history of flooding disasters in KwaZulu-Natal, said: “With regards to flood disasters — history is repeating itself. We need to prepare for bigger rainfall events in our cities and that doesn’t just apply to Durban, it applies to all South African cities and towns. We must get our infrastructure, especially drainage systems, in order. It is urgent that we better prepare ourselves for the heavy rainfall and flood events that are guaranteed to come in times ahead.”
Hollard’s 2022 annual report stated that the insurer’s underwriting results “were significantly impacted by adverse weather and devastating floods in KwaZulu-Natal during
April 2022”.
Though the flood-related claims were still being processed, Hollard estimated that its gross exposure was R2.9 billion.
“As Hollard, we are actively assessing and understanding the current and future implications of weather-related claims,” Bloom said.
“Our aim is to adapt underwriting practices and assist clients in enhancing their resilience to the impact of such events, for example recommending interventions like flood barriers or equipment relocation for flood-prone properties. Our goal is to uphold our win-win-win philosophy by collaborating with clients to mitigate these risks and to provide protection.”
In response to the Mail & Guardian’s questions, OUTsurance said it was very well capitalised and that “whilst these events have an impact on our pricing, with reinsurance and capital management we are able to deal with these events sufficiently”.
“Past claims are always factored into pricing and underwriting,” the insurer added.
The first edition of the South African Reserve Bank’s 2023 Financial Stability Review, released in May, flagged climate change as a medium to long term risk to the country’s financial sector.
The sector could see an increase in the number of uninsurable risks relating to frequently occurring climate-related events, such as floods, droughts and fires, the review noted. This predicament could lead to short-term insurance increasing in costs and an unwillingness to provide cover against climate-related risks.
In its 2023 integrated report, OUTsurance — which also operates in Australia — said that climate change “brings about uncertainty in the future of underwriting natural event risk”, resulting in the prospect of higher pricing because of the increased volatility in the frequency and severity of weather patterns.
The insurer flagged high levels of variability in its claims ratio, a key driver of the group’s short-term insurance operations. OUTsurance said the claims ratio was influenced by weather patterns, particularly in Australia “where the frequency and severity of natural weather result in a more volatile claims experience”.
In the wake of Australia’s catastrophic bushfire season in 2019-2020, OUTsurance Youi incurred A$43 million (more than R500 million in today’s exchange rate) in catastrophe claims.