Climate Change and the Effect on Insurance Premiums

Climate change hits insurance

HERALD CORRESPONDENT

THE effects of global climate change will soon touch the wallets of many South Africans as insurance premiums for those living in high risk areas is set to rise.

This comes as international re-insurers say the South African insurance industry is poorly prepared for the effects of climate change, taken seriously in Europe and north America.

High insurance risk areas include the Southern Cape, repeatedly affected by floods in the last five years, as well as those living near rivers, wetlands and the seashore. It also highlights what specialists have said for years: that climate change is an environmental and economic problem.

Santam, the country‘s largest short-term insurer, has announced that it will adopt “higher pricing structures” to insure against the effects of climate change because it has to cover risks that are more volatile and less certain.

Santam has not said by how much premiums will rise, because each policy-holder will be assessed according to his or her specific risk of being affected.

Ray-Ann Sedres, the manager of Santam‘s integrated sustainability section, said the company was used to cycles in the economy and climate and to balancing premiums with insured losses.

“Climate change is different. More volatile climatic events create less certainty and lead to bigger claims, which inevitably results in more complex and higher pricing structures,” Sedres said.

Householders living below the one in 50-year flood level, close to rivers and wetlands, are likely to be at higher risk, as are people living close to the seashore.

Apart from sea-level rise, predictions are that winds will rise in intensity, driving waves well above the high water mark – as seen in last week‘s storms in the Eastern and Southern Cape.