IIG News

Insurance and Climate Risk

Setting the scene as we look forward toward the Easter weekend on this beautiful Thursday morning in Jhb., our MC and recently appointed IIG Deputy President, Bukhosi Khumalo welcomed our IIG members, all 700 in attendance with his unique brand of grace, eloquence, and charm that we’ve all become accustomed to. He introduced the topic which will cover the risks currently facing the insurance industry from the external environment; both emerging risks and current risks that have now changed significantly. The presentation will also look at the impact these risks have on businesses, customers and ways in which insurers are adapting to manage these risks.


Bukhosi Khumalo

Carolyn Thompson


Our guest speaker, Carolyn Thompson, currently holds the position of: Executive: Product, Underwriting and Pricing at Old Mutual Insure (OMI), our Insights sponsor for the day. Carolyn graduated from the University of Pretoria with an Honours Degree in Actuarial Science 2009. From there she started at Old Mutual Insure in the pricing team and moved up to run Personal Lines Pricing in 2015. Since 2016, she also gained experience on the underwriting side as she started to manage a Personal Lines Technical Underwriting team. After a brief period at MFRF, where she gained cell captive experience, she returned to Old Mutual Insure, running Product, Underwriting and Pricing for the Retail division. She’s a Fellow of the Actuarial Society of South Africa and have also completed a Post Graduate Diploma in Leadership from Stellenbosch Business School. She’s a mother of two and love spending time outdoors.


Carolyn highlighted the risks facing our industry and, also researched global risks facing the world not just South Africa (SA). Some of the bigger risks globally are state collapse, erosion of social cohesion, collapse of a systematically important supply chain, lack of public infrastructure and services and cost of living crisis to name a few. People in SA who believe the grass is greener should be mindful that the above list is global and not just specific to SA. At different levels everyone is battling with their infrastructure in their various countries. On top of the unforgiving rising cost of living, people also need to cater towards failing infrastructures and need to equip themselves with other alternate forms of energy such as generators, inverters, solar power, etc.


Risks Facing the Industry

There has been an increased frequency and severity of worldwide catastrophes. The number of large-scale events is on a level we’ve never experienced before and overall losses experienced worldwide are much bigger than what we’ve experienced in the past. La Niña, a phenomenon that results in below normal temperatures and above average rainfall, has firmly impacted SA as we are in our third consecutive year of La Niña, which we hadn’t previously experienced since the 1950’s. In 2020, Insurers looked back to 2018 for guidance along premium pricing, but rates need to be dramatically increased to manage the increase of risks. SA is struggling to deal with a crumbling state and poor municipal infrastructure especially around increasing potholes everywhere. This is mainly as a result of Municipalities not having consistency in leadership as well as mismanagement of funds. Loadshedding right now is the biggest challenge facing the daily South African lives as well as issues with continuous water supplies. The resultant impact of the state of our roads has resulted on increased road accidents. Loadshedding itself has never been at such high levels. The power surge peril built into insurance policies was originally for lightning strikes not for this existing peril, which is more costly to cover. Devices are not generally made to withstand recurring power surges. Theft is also rapidly rising, and it seems to have become easier to steal vehicles, as a result of increased unemployment rates as well as inflation rates in South Africa.


During Covid-19, we could foresee the forthcoming increase in inflation, and it seems that SA seems a lot more resilient to dealing with these challenges, some of which being:

  • Supply chain shortages driven by Covid-19
  • Shipping delays
  • Increased demand for 2nd hand vehicles
  • Energy price pressures
  • New vehicles have more complex repairs and vulnerable to damage.


Previously customers were able to receive goods in 2-3days, but now it’s 2-3weeks. With new vehicles, repairs are a lot more complex due to sophisticated sensors on the vehicle and repairs due to damage are much more difficult to source due to lack of access to specific expertise. Globally there is a big labour shortage, especially in the US.


War – Impact on Motor Industry

  • Russian sanctions
  • 40% of the world’s palladium is produced by Russia (clean vehicle exhaust). Also, producer of nickel (electric vehicle batteries) and iron.


Reinsurance Pricing & Cover

  • Hurricane Ian – was the 2nd costliest after Katrina
  • Australian floods
  • Covid-19
  • KZN Riots
  • KZN floods – reinsurance on SASRIA was impacted.
  • The accumulation of catastrophes is what has impacted heavily on Insurers & Reinsurers
  • Due to the reality of climate change, re-pricing needs to occur to adjust for the crisis.
  • Reinsurers will expect insurers to retain most of the risk going forward.


Impact on Insurers

Increase in claims frequency:

  • Weather events causing flooding, lightning, motor accidents.
  • Poor condition of roads
  • Loadshedding – power surge, traffic lights being continually out of order.
  • Reinsurance pricing has increased, but the limit of cover has reduced.
  • Skills shortage due to emigration
  • high cancelations due to affordability


Impact on Customers

  • Increased pricing
  • Service delays
  • Limits in cover


How do we adapt?

We require responsible sustainable cover, clear communication, client risk management, automation, supply chain optimization, alternate reinsurance cover and be part of the solution to a better South Africa.

If there is a grid failure, clients need the comfort that there is sufficient cover in place and not have any surprises at claims stage. Insurers need to ensure they’re operating on a lean, slick basis to manage the cost of premiums whilst keeping the claims costs under control.


Carolyn closed her presentation with a reminder that, “After the storm, always, always , always the sun comes out again.”


Our MC, Bukhosi, thanked the speaker as well as our sponsor, OMI and allowed for a brief Q&A.


Article written by: Asiya Swaleh