South Africa is facing tougher fire and flood seasons, highlighting serious weaknesses in its risk management. Shockingly, over 70% of weather-related losses in the country are uninsured. This issue could jeopardize businesses, public finances, and long-term growth.
A recent report by Marsh, a global insurance broker, sheds light on this problem. While about 46% of global weather-related losses are usually insured, South Africa’s gap is much larger. Most of these losses—more than two-thirds—hit businesses, households, and the government hard.
Marsh explains that the “protection gap” refers to the difference between economic losses from disasters and the insurance coverage available. Ernest Eng, Marsh’s head of analytics for the IMEA region, notes that as climate change speeds up, this gap is becoming a serious threat to business stability and overall economic health. “South African organizations face not just a gap but a growing ‘resilience chasm’ due to unchecked global warming,” he says.
The impact of this gap was painfully evident during the devastating KwaZulu-Natal floods in 2022, which caused around R54 billion in damages, most of which went uninsured.
This warning comes at a time when climate-related disasters in South Africa are becoming more frequent. In January, wildfires ravaged Mossel Bay, the Cape Winelands, and Franschhoek, damaging infrastructure and prompting evacuations. Meanwhile, parts of northeastern South Africa endured severe flooding, leading to significant destruction in Limpopo and Mpumalanga.
What’s alarming is how these risks are becoming more intense. For instance, the Western Cape is experiencing hotter fires earlier in the year due to drier winters and strong winds. At the same time, Gauteng is dealing with heavy rains that overwhelm old drainage systems and transport networks.
Eng points out that many organizations react to risks instead of proactively managing them, which hurts the economy. Small and medium-sized businesses are particularly at risk. Many cannot afford comprehensive insurance, while others may not fully understand their exposure to climate risks. For these companies, a single uninsured event could spell disaster.
However, forward-thinking businesses are using data and risk models to prepare for potential losses. They are mapping risks and planning scenarios to minimize damage before disasters strike.
To effectively close this protection gap, Marsh advises increased cooperation between the private and public sectors. This collaboration should focus on better risk data, enhanced disaster preparedness, and a proactive stance on climate risks. Beyond just insurance, businesses should consider investing in resilience through infrastructure upgrades and diversification of their supply chains.
As more sectors face the consequences of climate change, it’s crucial for everyone—from large corporations to small businesses—to rethink their approach to risk. Embracing these changes can foster a more resilient future for South Africa.
For further insights, check out the Marsh report: Natural Hazards Risk and Climate Resilience: Preparing for the Next Disruption.
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