Since insurance first started centuries ago, premiums have been determined on the basis of client risk profiles, with insurers pooling risk across large numbers of clients to take advantage of the laws of large numbers. It has always been an imperative for insurers to ensure that their premiums reflect client’s individual risk profiles, because otherwise their risk pool would attract higher risk clients and repel lower risk clients.
Fires have also caused major damage over the last few years and seem to have increased in frequency and intensity, from the devastation caused by the fires in Knysna in 2017 to the devastating fire on the slopes of Table Mountain above the University of Cape Town in early 2021.are expected to increase because of climate change.
Properties that are in low-risk locations will continue to be insurable on normal terms, while those in higher risk areas may become increasingly difficult to insure, or lead to higher excesses, higher insurance premiums, and/or additional expenses to meet special risk mitigation requirements imposed by insurers.
The new EU adaptation strategy highlights that affordability and insurability of natural catastrophes is likely to become an increasing concern. In fact, research shows that in the past only a quarter of the total losses caused by extreme weather and climate-related events across Europe were insured. This strategy also outlines the need for improved climate projections. Unless measures are taken, the rise of these types of climate-related disasters will further widen the related protection gap.
The insurance industry has been affected significantly by the increase in these hazards. Santam’s flood and storm damage claims from the KwaZulu-Natal floods reached more than R4bn in 2022 alone.Increasing insurance premiums: globally, reinsurers are cutting back on the capacity that they make available for catastrophe reinsurance, with the pricing for the capacity that they do provide increasing. This inevitably must be passed on to buyers of property insurance.