AFI: A rise in weather-related insurance claims

Extreme weather and natural disasters in the last three years have resulted in some of the costliest years for insurers and their reinsurance partners worldwide. According to Alexander Forbes Insurance (AFI), the increase in weather-related claims is posing tough underwriting conditions for insurers who may have to consider hikes in insurance premiums to avoid underwriting losses.

Accounting firm, PricewaterhouseCoopers (PwC), says insurers will be grappling with an estimated £500m price tag for the current flooding in the UK whilst locally, heavy flooding caused damage to cars and property countrywide in the last couple of years and in February this year in Gauteng.

Gari Dombo, MD of AFI, in comparing 2013 to 2011 says: “We have experienced an increase in weather related claims of 75% in that 3 year period. Although AFI has already received weather-related claims amounting to R8 million since 1 January this year our approach for now will be not to implement across-the-board premium increases.”

Although the local insurance industry may have to consider premium increases to cover the costs of increasing weather-related claims, AFI says it will rather focus on performance based increases which would look at clients who have claimed frequently while trying to maintain inflation based increases for the balance. “We will continue to assess each client and the overall risk of policy holders individually. Generally however, we do expect rates to harden,” says Dombo.

The local short-term insurance industry is still reeling from the impact of extreme weather events in 2012 with insured losses suffered from flooding in Mpumalanga in January and a number of hailstorms in Gauteng in October. “The combined impact of 2012’s catastrophes,  the flooding in Limpopo in January 2013 as well as flooding in the Western Cape in November will likely be seen in most insurers’ underwriting margins this year,” says Dombo.

Adverse weather has also had a significant impact on the crop insurance market. In 2012, close to 90% of the farms in the Ceres and Witzenberg in the Western Cape suffered summer fruit crop losses as a result of hail storms while the increase in drought related insurance claims from farmers in certain parts of the Free State and the Western Cape, which have been declared disaster areas, has also impacted insurance underwriting.  “Some insurers have had to pull out of the crop insurance market as large weather-related losses and high claims ratios have made it unsustainable,” says Dombo.

On a global scale, catastrophes including earthquakes, floods, tornadoes, and other extreme weather conditions in 2011 exerted a costly toll on the global insurance and reinsurance industry. According to Munich Re, with more than $119 billion in insured losses, 2011 was one of the costliest years in the history of insurance.  In 2012, disasters including Hurricane Sandy cost the global insurance industry $50 billion (still above the 10 year average for the industry) all pointing to significant changes in weather-related risk.

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