Insurance firms face stormy weather and bigger payouts
WITH climate change expected to result in an increase in environmental risks, SA's insurance industry will have to start looking at engaging local government officials and business to bring down the cost of insuring local companies.
The Council for Scientific and Industrial Research (CSIR) and the University of Cape Town (UCT) have embarked on a pilot project in the southern Cape to study what insurance firms can do to mitigate the effects of climate change and how the sector can best adapt its practices.
Deon Nel, manager of the eco systems group at the CSIR, says that globally a number of studies have shown that the amount insurance companies were paying to weather-related claims was escalating annually.
Nel says that between 1980 and 2004 the global insurance industry paid out about $374bn in insured property losses to natural disasters. Insured weather-related losses increased 17-fold between the 1960s and 1990s, outstripping increases in gross domestic product (GDP), population or premiums. He says these trends could be linked to global changes in the risk landscape for the sector.
CSIR researchers hope to be able to illustrate how planning decisions by influential local stakeholders such as municipalities that oversee approval for developments affect exposure to risks such as flood damage, fire and coastal sea storms.
He says that for example the chance of severe floods could be reduced if local authorities ensured that inappropriate developments did not take place in wetlands or on flood plains. Similarly the risk of fires could be countered by ensuring that absentee landlords cleared vacant plots of alien vegetation, which could fuel runaway fires.
Nel says changes to the environment by humans were among the biggest drivers of risk exposure to worsening environmental disasters.
He says the researchers were looking at the role informal insurance schemes play in offering risk cover in the advent of extreme events and how these could interact with formal insurance firms.
Nel says the insurance sector may need to consider the way it calculated a risk profile for a development or product. Traditionally the sector evaluated risk based on the occurrence of past events, but with increased variability in weather patterns brought on by climate change this would no longer be possible.
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