The increasing frequency and severity of climate-related disasters are expected to push up insurance premiums for South African policyholders. While natural disasters were previously considered a lower risk in the country, the situation has changed significantly in recent years. At the same time, institutional investors continue to support industries contributing to climate change, intensifying the crisis and its financial consequences.
Key Takeaways
- Rising Insurance Costs: The increasing frequency and severity of climate-related disasters are driving up insurance claims, leading to higher premiums for South African policyholders. Households and businesses will struggle to keep up with the rising costs, leaving many financially exposed.
- Widening Protection Gap: South Africa’s protection gap, currently at 83%, means that the vast majority of economic losses from climate disasters are uninsured. Low-income communities are disproportionately affected, with many unable to afford the growing cost of insurance.
- Institutional Contradictions: Despite warning about climate risks, major insurers and financial institutions continue to invest heavily in high-emission industries. These investments contribute to climate change, fuelling the very disasters that drive up insurance premiums.
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Rising Claims Highlight Growing Risk
South Africa has historically been regarded as a country with a relatively low exposure to large-scale natural disasters. However, recent extreme weather events have proven that this assumption no longer holds true. The financial impact of these disasters is already being felt by insurers and policyholders alike.
In 2023, severe flooding in the Western Cape resulted in Santam, one of the country’s largest insurers, paying out R403 million in claims. Additionally, a destructive hailstorm in Gauteng led to R180 million in insurance payouts. Fire-related claims also surged, reaching R422 million—a 9% increase compared to the previous year.
Entire communities were left to deal with the destruction, while insurers struggled to keep up with the growing cost of payouts. Roads were washed away, businesses were forced to shut down, and families lost their homes, highlighting the devastating toll of these weather events.
This trend has only intensified in 2024. In the first half of the year alone, Santam paid out R607 million in weather-related claims, a staggering rise from R150 million during the same period in the previous year. The sharp increase highlights the growing unpredictability and intensity of extreme weather events, placing significant financial strain on the insurance sector. Industry insiders have warned that this trajectory is unsustainable, with some insurers already re-evaluating their exposure to high-risk regions.
Higher Costs and Affordability Challenges
As climate-related disasters become more frequent and severe, the insurance industry is expected to face higher costs, which will likely be passed on to consumers in the form of rising premiums. The financial burden will not only affect insurers but also create affordability issues for households and businesses.
The escalating cost of insurance could leave many policyholders struggling to maintain coverage, particularly as the broader economic environment remains challenging. Households and small businesses, already dealing with inflation and economic uncertainty, may find it increasingly difficult to absorb higher insurance costs. For many South Africans, insurance is already an expensive necessity, and with rising premiums, more people may be forced to go without—leaving them financially exposed to disasters that are becoming alarmingly common.
With rising insurance costs, policyholders must rethink their financial strategy. Ensuring comprehensive coverage while staying within budget is key to long-term security. By focusing on strategic financial planning with life insurance, individuals can balance their protection needs with their financial goals, even in an environment of increasing premiums.
Widening Protection Gap Leaves Many Uninsured
The growing frequency of climate-related disasters is also widening the protection gap—the difference between total economic losses and insured losses. This issue is particularly concerning in emerging economies like South Africa, where a significant portion of losses remain uninsured.
Currently, South Africa’s protection gap sits at 83%, significantly higher than the global average of 60%. This means that only a small fraction of economic losses from disasters are covered by insurance, leaving vulnerable communities without financial protection. In practical terms, this means that when disaster strikes, billions of rands in damages are left uninsured, forcing families and small businesses to shoulder the financial burden alone. Many simply do not have the resources to recover.
The situation is further exacerbated by economic pressures, including slow economic growth, rising unemployment, and the ongoing cost-of-living crisis. These factors make it even more difficult for consumers to afford insurance, increasing the likelihood that they will be left exposed in the event of a disaster.
Insurers Urged to Adapt to Climate Risks
With the financial impact of climate change mounting, insurers are being urged to adopt innovative, data-driven solutions to better assess risk and price policies accordingly. Advanced technologies such as predictive analytics, geocoding, and scenario analysis are seen as crucial tools for the industry. These methods allow insurers to model future risks more accurately and adjust their pricing strategies to reflect the evolving climate landscape.
However, while insurers are raising concerns about climate risks, there is growing scrutiny over their investment decisions, which often contradict their public stance on sustainability.
It is a case of ‘do as we say, not as we do.’ While these companies warn about climate risks, they continue to funnel billions into industries that accelerate the problem.
Institutional Investors and Their Role in the Crisis
Santam is not the only insurer warning about the financial risks associated with climate change. In 2023, Old Mutual Insure also highlighted the issue after recording ten major weather-related claims in a single year. However, despite acknowledging the risks posed by extreme weather events, major financial institutions continue to invest in industries that contribute to climate change.
Old Mutual and Sanlam, which owns a majority stake in Santam, have been identified as significant investors in high-emission industries. Both companies hold substantial shareholdings in Sasol, one of South Africa’s biggest carbon emitters. Additionally, Sanlam has invested heavily in coal mining companies such as Thungela and Exxaro, which continue to play a major role in fossil fuel production. This is not a minor financial stake—these investments amount to billions, supporting industries that are among the worst contributors to global warming.
This contradiction raises concerns about whether these institutions are genuinely committed to mitigating climate risks or whether they are prioritising short-term financial gains over long-term sustainability.
As medical insurance premiums rise, policyholders often face out-of-pocket expenses that traditional policies don’t fully cover. This is where understanding gap cover becomes crucial—it provides a financial cushion for unexpected costs, ensuring that medical bills don’t become an additional burden.
The Cost of Climate Contradictions
By investing in high-emission industries, institutional investors are contributing to the very crisis that is driving up insurance costs. As extreme weather events become more frequent, insurers will be forced to raise premiums to offset their growing financial liabilities. Ultimately, policyholders will bear the cost of these decisions, paying higher premiums for insurance coverage while facing greater climate-related risks.
Despite publicly advocating for responsible investment strategies, financial institutions have been accused of taking a superficial approach to sustainability. If insurers and asset managers were genuinely committed to protecting clients from climate risks, they would be using their influence to push the companies they invest in to reduce carbon emissions.
The reality, however, is that major investors continue to profit from industries that fuel climate change, leaving South African consumers to absorb the financial consequences. Without a shift in investment strategies, the cycle of rising insurance costs and worsening climate risks is likely to continue, placing further strain on households and businesses in the years ahead.
Conclusion
The growing impact of climate change is making insurance more expensive and less accessible for many South Africans, while financial institutions continue to profit from industries worsening the crisis. Without urgent reforms in both investment strategies and risk assessment models, insurance will become a luxury few can afford, leaving millions unprotected. The contradiction between insurers’ climate warnings and their financial backing of polluting industries must be addressed, or South Africans will continue paying the price for a crisis they had little role in creating.
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