Trend: →
Nature: External
Over the course of the past decade a cluster of environment-related risks – notably extreme weather events, failure of climate change mitigation and adaption, as well as water crises – emerged as a central feature of the global risk landscape. Because of the combined effects of climate change and poor maintenance of infrastructure, risk insurance companies are expected to cover a wider range of risks. Insurance premiums are likely to increase as insurers and reinsurers carry the burden of claims arising from severe weather events.
These trends can lead to some areas being uninsurable. This is driving greater engagement between insurers, policyholders, local authorities and intermediaries to mitigate risk proactively.
Insurers can play a critical role in reducing the socio-economic impact of severe weather events. However, low insurance penetration, especially in developing markets, has seen the protection gap widening over time. This reduces the risk-bearing impact of insurance and increases the burden on governments and taxpayers. Insurers will have to look at ways of addressing penetration proactively, including raising awareness around the role they can play in risk transfer and risk management.
Another area where insurers can play a bigger role is in resilient investing, e.g. infrastructure and green energy. However, this is often hampered by fragmented policy and regulatory frameworks. Stakeholders are also requiring more information from companies around how they are addressing increased weather-related risk.
Mitigating actions
Santam is partnering with municipalities across South Africa to manage fire and flood risks and to build understanding of the systemic risks inherent to the areas where we do business. Santam was the first African insurer to mobilise the short-term insurance industry in response to increasing climate and weather risk to address this need – a gap that can be termed ‘the risk protection gap’.
Santam and ICLEI Africa (the African secretariat of the world’s leading network of more than 1 000 cities, towns and metropolises committed to building a sustainable future) initiated the so-called CIP AIRR pilot project in Dar-es-Salaam, which typifies a ‘resilience investment’.
Santam is working closely with the UN Environmental Programme Finance Initiative, Principles for Sustainable Insurance and ClimateWise – the global insurance industry’s leadership group that drives action on climate change risk.
The expansion into credit assets means that Sanlam is investing more in longer-term infrastructure projects, such as renewable energy. Sanlam is looking at how to meet the new Task Force on Climate-related Financial Disclosures (TCFD) recommendations released in June 2017 in a pragmatic way.