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A storm is brewing in the insurance sector

Catastrophic weather events are on the increase.

Whether you believe in man-made climate change theories or not, what is undeniable is that extreme weather events are on the increase.

We don’t have to look too far for evidence. In SA alone, there were three main catastrophic events over the last year – the fires in Knysna, the drought in the Western Cape, and storms in Gauteng and Kwazulu-Natal (including a tornado near Johannesburg). The average for much of the last decade has been one such event a year.

JSE-listed Santam is a reasonable proxy for the short-term insurance sector. The accompanying graph shows a marked spike in catastrophe claims in 2017, relating mainly to the aforementioned floods, storms and fires. The insurer incurred gross claims of R823 million from the Knysna and Western Cape fire, and R1.1 billion from storms in Kwazulu-Natal and Gauteng.

Santam catastrophic claims 2017

Source: Santam analysts presentation 2017

What is more interesting about the graph is the trend since 2012. It clearly shows a fundamental change in the overall level of catastrophe claims in the last six years. Something is clearly going on with the weather.

Nor are these trends confined to SA. Last year was the worst on record for weather-related insurance losses globally, according to global risk and insurance giant Aon. Its Weather, Climate & Catastrophe Insight 2017 reports that weather-related losses totalled US$344 billion, more than double the previous year. “The third quarter of 2017 was the second-costliest quarter ever registered at US$261 billion due to catastrophic damage caused by a trio of major hurricanes and flooding across Asia,” says the report.

Source: Aon’s Weather, Climate & Catastrophe Insight 2017

At a recent panel discussion on how extreme weather is affecting insurers, hosted by Norton Rose Fulbright in Sandton, Professor Coleen Vogel of the Global Change Institute at Wits University presented evidence that Africa is experiencing more extreme weather changes than the rest of the world: average temperatures on the continent are rising 0.11 degrees centigrade each decade, double the rate of the rest of the world.

“When you get an average two-degree rise in temperatures, you have problems. If it hits five degrees, we’re in real trouble,” she said.

These temperature rises create feedback loops that impact drainage and wetland systems and infrastructure. Urban over-crowding and bad construction practices, such as dumping rubble alongside the Jukskei River, aggravate an already fragile natural balance. Vogel says extreme rainfall is projected to increase in southern Africa, creating more intense thunderstorms that will degrade roads and dwellings.

Source: Aon’s Weather, Climate & Catastrophe Insight 2017

Michael Chronis, director of Norton Rose Fulbright, points out that engineers may have to look at how they design roads and other infrastructure in light of extreme weather event statistics. “I think we are looking at an increase in the number and the value of claims based on these trends,” he says.

Simon Robinson, head of specialist property at Bryte Insurance, says based on these trends, insurers may in future be asking clients for risk improvement actions such as retrofitting buildings to withstand more extreme storms. So far, there is little evidence of future expected extreme weather events priced into premiums, as these are largely based on historical data. “The solution is to take a proactive approach to limit the likelihood of catastrophic damage by engaging with clients and making sure that they are prepared for these kinds of events. What we need to work on is early warning systems, so we have better predictions when extreme weather events are likely to occur,” he says.

Though extreme weather events might be localised, what happens in Europe or the US impacts the price of insurance in SA, since all insurers are required to purchase reinsurance, which reflects global rather than local events.

Aon’s Weather, Climate & Catastrophe Insight 2017 says there were 330 natural catastrophe events in 2017 that generated economic losses of US$353 billion, of which 97% were weather-related. These events included Hurricanes Harvey, Irma and Maria in the US and Caribbean, Typhoon Hato in China, and Cyclone Debbie in Australia. Natural catastrophe losses in 2017 were 93% higher than the 2000-2016 average.

Panelists at the Norton Rose Fulbright discussion argued that no single entity, least of all insurers, could solve the problems of extreme weather alone. What’s needed is a coordinated approach with city and provincial planners to better predict adverse weather events, and provide better pre-emptive action when such events occur.

One need only look at the potholes that mark the roads after a severe thunderstorm. Or roof collapses. This is likely to be the pattern going forward. Road builders, engineers, and architects are going to have to get in on the act if the weather of recent years is any prediction of what is to come.

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An even bigger challenge are developing locally that will have a much larger impact on the short term insurance industry. Premiums will dry up. With looming confiscation of land and property, a bankrupt government, bankrupt SOE’s and the economy in free fall, property owners will abandon insurance payments in drove. Why protect and insure when the ruling party and the government promotes uncertainty and economical chaos?

I agree that the climate is changing yes, but we are paying tax money to a government that suppose to distribute this money towards security, safety, etc. This includes the safety of your assets in the form of protection from the police, but we even though we pay for this service, we don’t get it. If it was not for theft and murders we would only insure against natural disasters, therefore the premiums of short term, long term, life insurance, you name the insurance type, the premiums would be really low, I believe the premiums would be close to 4% of the current premiums.

In my opinion the current laws and regulations are real strict regarding this matter, but it lacks enforcement. Still they implement new ones because they think the old ones don’t work.

If the government don’t improve this (only one of the numerous problems caused by the government themselves), the premiums will increase indefinitely.

Knysna fires were most likely deliberately started & as such not attributable to climate change.

Yes indeed…. but the CONDITIONS of extreme heat and not enough rain that led to those fires were as a result of climate change. And so is the case in California, Greece, Sweden, Portugal, Canada and many other places.

Of course climate change is caused by human activity. 97% of climate scientists agree this is the most likely explanation. The evidence is everywhere and if we continue to behave like ostriches, we are condemning ourselves and our children and their children to an extremely unpleasant future. We need to adopt harsh measures like a carbon tax immediately. Renewable energy projects must be encouraged across the board. We have created this problem and we can change it, but we have to act NOW.

Check this out. What caused the climate change before the burning of fossil fuels?

You statement is wrong on two levels. Firstly to state that 97% of scientists agree (…) is complete nonsense.

Secondly it is a logical fallacy. Argumetum ad populum. You can google that one.

Roy Spencer is a rabid fundamentalist who believes that (his) god created us all, is responsible for everything that happens, and that (his) god will sort out all problems. He is one of the signatories to “An Evangelical Declaration on Global Warming”, which states: “We believe Earth and its ecosystems—created by God’s intelligent design and infinite power and sustained by His faithful providence —are robust, resilient, self-regulating, and self-correcting, admirably suited for human flourishing, and displaying His glory.”

His work is completely discredited in the scientific community.

And please spare us your arrogant “you can google that one”. Yes, we know what argumetum ad populum means.

Poor posting, MRG. Evidently you need to Google argumentum ad hominum. You cannot post a counter argument against Roy Spencer so you use his religious beliefs (irrelevant) to attack him to discredit him. Appallingly poor show. hang the head in shame etc. Incidentally there is nothing controversial about the graph I posted which is actually from Ljungqvist not Spencer, anyway.

if it is really true that the sea temperature is rising, it can only and only been caused by a rise in the core temperature of the earth.

we should address the problem of higher sea temperature correctly, if we don’t, this civilization is doomed.

Extract from NatGeo:

“Global warming caused by human activities that emit heat-trapping carbon dioxide has raised the average global temperature by about 0.6°C over the past century. In the oceans, this change has only been about 0.1°C.”

Heating of SST (sea surface temp) is due to ATMOSPHERIC changes….NOT from the earths core….and its scientifically accepted that earth’s core is COOLING. (…how cool is that?! 😉

…if you believe sea water temp rise comes from the earth’s core, then an easy fix is to perhaps run a garden hose down a crevice 😉

In an increasingly connected world why do we still need to burn so much fossil fuel?

Freeways and Airways are become more congested not less. Is there a scientist that can estimate the economic impact of a 50% reduction in this cost?

With the “land reform” debate raging, one fact that is being suppressed is that the jurisdictions with the highest per capita income — i.e. those that can provide for all their citizens best — excluding “oil barrels” like Kuwait, have very little land and high population densities. Many of them, like Liechtenstein, Monaco & Switzerland have opted for financial and insurance services. They all have excellent education in order to maximise their “human capital”.

No matter who owns, rents or inhabits it, SA’s land is far from most major markets, disadvantaging us over transport costs. Financial, insurance and other “intellectual capital” trades have, thanks to the Internet, no such barriers.

Instead of messing around with ideologies and agricultural and industrial “revolutions” that are one or two centuries outdated, the ANC-as-government should be apologising for “liberation before education” and dysfunctional education and fixing these and remove barriers to business.

In a genuine democracy, 27% unemployment would boot a government out of office; so far, during the “CR2017 New Dawn” the position has deteriorated.

Makes complete sense. Well said!

(yes, as you say, “the people” amazingly tolerate such high unemployment rates, as most do not understand the economic cause of that. The educated high net worth minority are too few in number to bring the message across to Govt. Govt only cares to remain in power/votes, it seems.)

Potential bad news for the short term insurance industry (to start hedging / re-insurance), below is what I pick up (copied) from the NOAA Climate Center site:

“…the forecasters still favor the onset of El Niño in the coming months. In summary, there is ~60% chance of El Niño in the Northern Hemisphere fall 2018 (September-November), increasing to ~70% during winter 2018-19”

Winter in the US/northern hemisphere = summer in the southern hemisphere.

So what does the prediction say?
70% probability of EL NINO (drought conditions) for SA’ summer rainfall regions, come 2018/19.

(Hope it’s a weak El Nino! Want to sell your yacht on the Vaal?….now could be a good time)

“This includes the safety of your assets in the form of protection from the police,” Yes, protection from the police. Given the rampant crime and deteriorating prospects and economy why bother about global warming? Another year or two and everyone will be broke but don’t worry, you won’t need a sweater

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