Insurance premiums in South Africa could soon include climate change risks

Major South African insurance company Santam is working on a technology-driven tool that helps underwriters determine when a property is at greater risk of climate change-related events.

Titled the Santam Underwriting Viewer, this tool uses spatial intelligence technology to combine the addresses of homes with scientific data relating to at-risk regions.

Underwriters can then overlay these environmental risks onto the properties that clients want covered to determine if they should charge extra to account for climate change risk.

While Santam is among the first local insurers to use this technology, it is common in the United States, United Kingdom, and Europe.

“While clients are unaware of the application of the technology on the back-end during our underwriting process, it carries immense benefits as it allows for site-specific underwriting and prevents attaching policy conditions to properties outside the hazard area,” said Santam GIS Technical Specialist Zelda Els.

“Neighbouring plots can carry entirely different levels of risk, depending on their proximity to a flood line and elevation above a water source, for instance.”

She said that Santam is also developing a data set that considers the risks related to veld fires.

Studies have been completed on a localised level, but they need to be expanded to a national level before they can be implemented effectively.

“Factors that help determine the level of risk include the type of vegetation and land cover surrounding a property, wildfire history, previous fire claims in the area and topography data such as slope,” said Els.

“The data will enable the development of a fire hazard map and inform mitigation measures and an appropriate fire risk rating to be applied to a property.

Rising costs for South African insurers

Els also noted in a blog post earlier this year that the costs South African insurers have paid relating to climate change in recent years are deep into the billions of rand category.

Speaking about the April 2022 KwaZulu-Natal flood, Els said that R4.3 billion was paid just in claims, while a total of R27 billion was covered by the insurance sector overall.

“It was the third significant severe weather event in KZN in just four years with the previous major flood since the 1980s occurring in 2019 and before that, in 2017,” said Els.

“The increasing frequency and severity of severe weather events — such as heavy rainfall and resultant flooding — threatens the sustainability of insurers who must protect the integrity of their balance sheets to continue paying claims for years to come.”

“Harnessing the power of technology and geospatial data offers a solution to reducing this risk and ensuring the longevity of cover.”