Climate change stirs up a storm for SA consumers and insurers

Climate change is causing extreme weather activity and flooding, cyclones and severe storms are becoming more prevalent which in turn will have an impact on the insurance sector and consumers. Picture: Karen Sandison/Independent Newspapers

Climate change is causing extreme weather activity and flooding, cyclones and severe storms are becoming more prevalent which in turn will have an impact on the insurance sector and consumers. Picture: Karen Sandison/Independent Newspapers

Published Apr 14, 2024


The impact of climate change is causing extreme weather activity and flooding, cyclones and severe storms are becoming more prevalent, according to Oswald Kuyler, head of Short-Term Insurance, Consult by Momentum.

The South African Insurance Association (SAIA) said that climate-related disasters such as floods and storms continue to have a significant impact on both consumers and the insurance industry.

SAIA has seen a notable surge in weather-related insurance claims among its member companies for both property and motor insurance which underscores the increasing vulnerability of people to climate change risks.

According to the Santam Insurance Barometer Report 2022/2023, the economic cost of the April 2022 KwaZulu-Natal floods was estimated at R54 billion, with half that total carried by the insurance industry

While the Western Cape government reported at least R3.5 billion worth of infrastructure was destroyed in two major floods in June and September last year.

The Santam report showed that for 2023, 14% of consumers in the report identified climate change as a major risk. This number was up from the 4% in 2020/2021. For 2023, 47% of commercial and corporate entities identified climate change as a top risk, up from the 35% in 2020/2021.

Consumers and insurers

According to Themba Palagangwe, General Manager: Governance and Transformation, SAIA, weather-related claims has put significant strain on the South African insurance industry which in turn in impact insurers as well as consumers which could result in some changes further down the line.

Palagangwe said due to the severe weather conditions becoming more frequent as a result of climate change, in the future some insurers may exclude certain weather related insurance covers from their policies.

While insurers are managing claims, they also face the financial challenge of being able to pay out all of the claims.

“Insurers may not have the balance sheet to pay out the claims,” Palagangwe said.

Palagangwe said that people should also prepare themselves for the financial strain that they could be facing due to the impact that climate change has on the insurance sector.

The frequency and severity of the climate related events will ultimately lead premium hikes, as increased claims means increased risks, which will impact consumer/policyholders negatively.

Palagangwe said: “This is likely to impact new consumers more instantly as their risks are determined at underwriting.”

Therefore new customers that are looking to get insurance can expect to pay higher premiums.

Existing customers of insurance companies could expect to pay a higher premium when their premium anniversary comes around as they put in more claims to cover damage by the weather which has an impact on their risk profile.

Palagangwe said that government also has a part to play in mitigating damage to infrastructure and easing the pressure on the insurance sector.

“Government needs to invest in proper construction and maintenance of infrastructure to lessen the impact on insurers,” Palagangwe said.

How consumers can protect themselves

As South Africa faces extreme weather conditions, people should be turning their attention to their insurance policies to ensure that they have comprehensive cover to sort out any possible damage to their cars or property.

Car insurance

Different insurers have specific rules when it comes to covering the damage caused by the weather, according to the Ombudsman for Short-Term Insurance.

If water reaches the level of the vehicle dashboard or the car roof, then you need to contact your insurer to let them know about the damage.

Should the cost to restore the vehicle to its original roadworthy state be higher than the vehicle’s insured value, the insurer may write it off. Insurance will then pay out the vehicle's insured value in cash, minus the excess.

In instances of blatant negligence, your insurance may not cover you for water damage because vehicle owners are responsible for caring for their vehicles and keeping them out of harm’s way.

Will car insurance cover hail or flood damage? The answer is that it depends on a person’s car insurance coverage and the insured events that are included in their policy.

According to the ombudsman, third-party only and third-party fire and theft insurance do not cover extreme weather damage.

Home insurance

The bad weather can cause damage to your home contents as well as the exterior of home, therefore, you need insurance to cover them both.

According to Wynand van Vuuren, the client experience partner at King Price Insurance, it is critical that the contents of your home are insured for their current replacement value, not what you paid for them.

“Make sure that you have specified any high-value items that you take outside the house under your portable possessions cover, or they’re effectively uninsured.”

Karen Rimmer, Head: Distribution of PSG Insure, agrees that household contents should be insured for their current replacement value.

You also need to think about your building insurance and work out what it would cost to rebuild your home, then insure for that amount.

“Buildings insurance should include the cost of rebuilding your house, including boundary walls, solar panels, swimming pool, taps and tiles. And if you have made major improvements to your home, such as adding a new room, tell your insurer, or you risk being under-insured,” van Vuuren said.

Rimmer said that for most people, their home is the most valuable asset they will ever own, and a catastrophic event such as heavy rain could ruin them financially if they are not adequately insured.

“When it comes to insuring your property, make sure that you are covered at the current building costs per square metre and make provision for any outside extras,” Rimmer said.

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