Higher insurance premiums on the cards for South Africa

Climate disasters are becoming more frequent, which will likely result in higher premiums for customers, while institutional investors fuel the crisis.

South Africa has traditionally been seen as a relatively low-risk environment for natural disasters.

However, Thabiso Rulashe, Head of Investor Relations and Strategy at Santam said that this is no longer the case.

In the Western Cape, floods in 2023 cost Santam R403 million, while the Gauteng hailstorm cost R180 million.

Fire claims also reached R422 million, a 9% increase from the year prior.

The upward trend continued into 2024, with Santam covering R607 million in weather-related claims for policyholders in the first half of the year, a significant jump from R150 million in the prior period.

Rulashe said that the growing frequency of extreme weather events will likely become more expensive for the industry and lead to affordability challenges for households and businesses in the future.

The growing frequency of extreme weather events will inevitably become more expensive for the industry.

This will also create affordability challenges for households and businesses in the future.

The trend also exacerbates the protection gap, with low-income communities more heavily affected.

The protection gap looks at the difference between economic losses and insured losses, which is a global issue that severely impacts emerging economies where most losses remain uninsured.

South Africa’s protection gap is currently 83% far above the 60% seen in the globe.

“Unfortunately, harsh macroeconomic factors such as low economic growth, rising unemployment and the cost-of-living crisis continue to place pressure on the consumer, further exacerbating this gap,” said Rulashe.

“Insurers need to recognise that each unprotected asset represents a potential setback, impacting not only individuals but entire communities by diminishing their capacity to recover from catastrophic events.”

He added that data-driven innovation is key to creating solutions that match the pace of climate change.

Advanced technologies like predictive analytics, geocoding, and scenario analysis should allow insurers to better understand risks and set premiums that reflect the shifting landscape.

Walk the talk

Santam is not the first insurer to raise concerns over climate change in South Africa.

Last year, Ronald Richman, former chief actuary at Old Mutual Insure, also noted that Old Mutual Insure recorded ten major weather-related claim events over the year.

Despite the increased costs for the insurers and the devastation of these weather-related incidents, Old Mutual and Sanlam, Santam’s majority shareholder, are massive investors in major polluters.

Just Share’s Tracey Davies previously noted that the Old Mutual Investment Group and Sanlam Investment Group are among the largest shareholders in the country’s biggest emitters.

Both groups currently have large shareholdings in Sasol, while Sanlam has large investments in coal miners Thungela and Exxaro.

These companies are thus partly responsible for fueling the current climate crisis, as they use their members to invest in environmentally destructive companies.

This will then result in higher premiums for insurance customers over the coming years.

Davies said that the responsible investment approach adopted by the major institutional investors is that they need to look like they take the climate crisis seriously, but are focused on short-term gains.

She added that if Old Mutual and Sanlam were focused on client resilience, they would take every opportunity to push the companies they are invested in to reduce emissions.