Insuring a sustainable future

Standard Bank Insurance Dialogue calls for collaboration to build climate resilience

South Africa, like every other nation, is grappling with the consequences of climate change. The increased frequency and severity of floods, droughts, wildfires, and other extreme weather events pose a significant threat to communities, ecosystems, and economies, with billions of rands in damages reported each year.

Standard Bank Insurance believes that the calamities brought on by the environmental challenges highlight a need for intentional collaboration between players to safeguard the sustainable growth of Africa’s economy.

This was the basis of an insurance dialogue held on 1 February 2024 in Sandton, hosted by Standard Bank Insurance and the Mail & Guardian in partnership with the SABC, where experts unpacked the pressing issue of severe weather patterns and explored its impact on the insurance industry and the lives and livelihoods of South Africans.

Johan van Greuning, CEO of Standard Insurance Limited, set the stage, outlining the significant economic growth potential in Africa – from its untapped natural resources to its young and vibrant population. This potential, however, is under threat: “Rising temperatures and rising sea levels, changing rainfall patterns and the frequency of extreme weather events like droughts or floods – the severe consequences affect a vast range of sectors, from agriculture to energy and infrastructure, but more than that, they impact every person and threaten the economic security of individuals, households and businesses around the world.”

Weathering the storm

“Insurance plays a crucial role in speeding up recovery after climate disasters,” Van Greuning emphasised.

In highlighting the insurance sector’s pivotal position, however, Van Greuning acknowledged that only 18% of the economic losses incurred in the KZN floodings were insured. “As an industry, one of our most important roles is that of prevention and education, because that allows consumers and communities to take action to mitigate the risks posed by extreme weather events.”

Dr Andries Kruger, Chief Scientist at the South African Weather Service, spoke to the alarming increase in the frequency and severity of extreme weather events in South Africa. “Last year was an eye-opener, as it was the hottest year on record globally,” he noted, adding that rising temperatures contribute to shifts in atmospheric circulation, which result in more frequent droughts in some areas and increased flood risks in others.

According to Jennifer Fitchett, Professor of Physical Geography at Wits University, there is a need for advancements in climate science models: “We have some of the best data available in Africa, but we’re starting to see new storm types that have never been recorded or observed before. These are unprecedented events, and it is difficult to predict when or how they will happen.”

Despite this uncertainty, said Standard Bank’s Executive Head of Insurance and Fiduciary, Shaka Zwane, there are patterns and there are notable risks that can be mitigated. He emphasised the importance of clarity in insurance policy coverage. “It’s quite important that households and owners of homes understand what is covered by the insurance, and what responsibility lies with them,” he noted.

Mitigating the risks

Homeowners should be conducting regular maintenance; this is not only important when the time comes to claim, but also goes a long way in preventing damages, said Dr Hardy Ncube, Head of Personal Products at Standard Insurance Limited. “Whether you’re checking your gutter system to make sure it is clean or making sure that your roof is in a good state before the rainy season starts, there are steps that every individual can take to minimise climate-related property damages.”

Fitchett added that preparedness is key. “It is about not finding that perfect location to live, because that does not exist,” she cautioned. Instead, it is important to mitigate specific risks likely to occur and understand how those risks vary in time and space.

Mitigation, she added, is just one part of the solution: “We also need to move towards broadscale adaptation, ensuring we are better able to withstand storms, hail and tornados, and that evacuation and disaster-readiness plans are in place to protect people as and when these events occur.”

Understanding the protection gap

Ncube added that the protection gap – the difference between total losses and insured losses – is of increasing concern, particularly when it comes to home and car cover. He explained that there is no one-size-fits-all approach, and the future of the insurance industry must be adaptable, modular and customisable. This helps consumers prioritise what is most important to them and prevents the underinsurance of certain assets.

Standard Bank’s Head of Commercial Insurance, Dini Nondumo, agreed: “There is no single, linear ‘best’ way to cover your assets, which is why it is important to speak to a professional who can guide you and ensure you have all the information needed to make good choices that protect you and what is most important to you.”

Adapting to a changing world

Ncube said one of the key ways insurers are contributing to the fight against climate change is through the development of innovative and forward-thinking policies, and leveraging of technological advancements like geo-location analytics software to enhance customer engagement and offer more tailored insurance products.

By leveraging advanced data analytics and climate modelling, insurers can more accurately evaluate the potential risks associated with climate-related events and incentivise businesses and individuals to adopt environmentally friendly measures, thus creating a more resilient and adaptive society.

Collaboration to build resilience

Dorah Marema, Municipal Sustainability Head at the South African Local Government Association (SALGA), highlighted the frontline position of municipalities in facing climate impacts but expressed their lack of capacity and resources for adequate responses. “Climate change is real, and as much as this is a global phenomenon, disasters happen at a local level.”

Apart from physical storm damage and the destruction of infrastructure, farming is impacted and communities face increased pests and poor health outcomes, which have a compounding effect on already vulnerable communities: “This exacerbates the crisis, especially in small municipalities not able to shoulder the destruction. We need an all-of-society effort to adequately manage what lies ahead. The private sector cannot just be a service provider but must be a partner in this.”

Education at all levels

Recognising that vulnerable communities are often the hardest hit by climate-related disasters, Marema said it is critical to enhance the adaptive capacity of municipalities in these regions. From funding early warning systems to supporting the construction of climate-resilient infrastructure, the insurance sector can play a part in fortifying communities against the impacts of a changing climate.

Above and beyond innovative public-private partnerships on infrastructure projects, there is also a need for community engagement in monitoring storm drains to reduce the likelihood of flooding and insurance incentives to curtail risk exposure. Marema says education reform is also needed to prepare professionals – the planners, architects and engineers of tomorrow – to deal with climate risks and build resilience.

The road ahead

With its expertise in risk management and financial assets, South Africa’s insurance industry is uniquely positioned to lead by example and serve as a force for good in the face of climate change. Yet building genuine resilience necessitates widespread participation from all corners of society. Marema extended an open invitation to the insurance industry, urging partnerships with municipalities to assess vulnerabilities and devise resource-backed plans to reduce risks.

This was well-received by those in attendance. “Insurance is just one of the players that provide financial aid to speed up recovery, but this is not a burden that can be shouldered by a single industry or role player,” Van Greuning stated. “A lot is being done in this space, but a lot more can be done. This is a societal issue that needs everyone to work together to help alleviate the pressure.”