The frequency of severe weather incidents is increasing at an accelerated pace with infrastructure worth billions of rands continuing to be destroyed. Businesses are grappling with substantial financial losses, as they contend with soaring operational costs to maintain their operations and keep their doors open.
This trend is evident in recent natural catastrophes, such as the 2017 Western Cape wildfires, the April 2022 KwaZulu-Natal (KZN) floods, and significant flooding in the Western Cape and along the Orange and Vaal Rivers in 2023.
Climate change has become not only a social risk but also one of the biggest financial risks, impacting the national economy. While insurance cover has traditionally served as a safeguard for businesses facing losses from severe weather incidents, there are now emerging concerns and warning signs that could be alarming for businesses.
“The increasing occurrence and intensity of climate-related risks present companies with a new set of dynamic and complex challenges,” says Hermanus van der Linde, the CEO of IntegriSure Brokers.
Van der Linde elaborates on the diminishing appetite of reinsurers to take on specific risks, particularly in regions prone to sever weather events. Consequently, insurers find themselves shouldering a greater portion of the risks compared to the past, leading to a corresponding reduction in their risk appetite.
“This, in turn, directly impacts businesses. In the past, there were instances where insurers may have been lenient in terms of risk requirements, and in some cases even allowing clients to be non-compliant with a punitive excess. However, we are now observing instances where insurers are steadfast in their insistence on risk prevention measures, with little or no room for negotiation. While this is a prudent approach for insurers to appropriately manage risks, it carries significant and far-reaching financial implications for businesses.”
This was echoed by findings from a global customer survey, “The Value of Insurance in a Changing Risk Landscape,” that reveals insurance clients across the world’s six largest insurance markets are concerned about future insurability. Over 50% of respondents expect it will become more difficult or impossible to get insurance for natural catastrophes.
As climate risks intensify, systemic risk grows, posing challenges to the conventional insurance business model. This could result in elevated premiums, rendering insurance either prohibitively expensive or, worse yet, inaccessible.
“It is our belief that the risk management landscape will undergo a profound transformation, with brokers assuming a central role in safeguarding businesses beyond merely securing appropriate insurance products but in proactively identifying and assisting with non-traditional risk management solutions. It is essential for brokers to provide services that go beyond conventional risk transfer, and incorporate elements such as risk prediction and prevention. Through leveraging their expertise to deliver comprehensive services addressing risk mitigation and fostering positive change, brokers can guide clients in developing robust risk management strategies to ensure uninterrupted business continuity,” concludes van der Linde.