South African insurers are shooting themselves in the foot

 ·8 May 2024

South Africa’s insurance industry faces severe risks due to global warming but is also heavily responsible for the crisis, which could result in significant premium increases in the near future.

Ronald Richman, chief actuary at Old Mutual Insure, recently said that South Africa has seen an increase in major weather-related claims.

“While the country used to be a Catastrophic Event (CAT) free zone, the scale and magnitude at which disasters have taken place recently means we are now experiencing a dramatic shift in the CAT landscape,” said Richman.

Old Mutual Insure recorded ten major weather-related claim events, which included the Western Cape storms in June and September and the hailstorm in Gauteng and Mpumalanga in November 2023.

South Africa is not necessarily unique in this situation, with some experts believing that the US economy is overexposed to climate risks in a manner similar to the mortgage risks in 2008, which were a leading cause of the global financial crisis.

“Given this picture, it is not far-fetched to believe that climate change has the potential to destabilise the global insurance industry, with ripple effects for South Africa,” said Richman.

Problem child

That said, South African insurers are heavy investors in companies that are fueling the climate crisis.

Non-profit Just Share’s Tracey Davies said that the Old Mutual Investment Group and Sanlam Investment Group are among the largest shareholders in the country’s biggest emitters, particularly Sasol and coal miners Thungela and Exxaro.

Although the insurance of arms of these companies position themselves as climate warriors, they are still still investing billion of their clients that share responsibility for climate impact.

Davies said that this will cause huge increases in insurance premiums in the coming years.

“The soft, friendly approach to responsible investment adopted by South Africa’s major institutional investors sends a clear message to big emitters: we need to look like we’re taking this seriously, but what we really care about is short-term returns, so don’t do anything too drastic,” said Davies.

“If client resilience really did drive Old Mutual and Sanlam, they would be taking every opportunity to push the companies they are invested in to reduce emissions, including filing shareholder resolutions, voting against the re-election of directors responsible for climate strategy, and demanding transition plans that are connected to what is required by climate science.

“But without client outrage and regulatory pressure, expect this extreme corporate cognitive dissonance to continue.”

Read: The biggest economies in the world in 2024: South Africa vs China, Russia and the USA

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