Mitigating the increasing effects of climate change has become a top priority for South African insurers who have collectively paid billions of rands in related damages over the past five to 10 years.
By Zelda Els, technical specialist at Santam
The increasing frequency and severity of severe weather events – such as heavy rainfall and resultant flooding – threatens the sustainability of insurers who must protect the integrity of their balance sheets to continue paying claims for years to come. Harnessing the power of technology and geospatial data offers a solution to reducing this risk and ensuring the longevity of cover.
To illustrate the impact of natural hazards, the devastating April 2022 KwaZulu-Natal (KZN) flood was one of the deadliest natural disasters ever to be recorded in South Africa. It was the largest single flood loss event on Santam’s books in its 105-year history, with R4,3-billion paid in claims. Total losses were estimated at R54-billion, of which R27-billion were covered by the insurance sector. It resulted in R17-billion in damages to essential infrastructure in the province causing major disruption.
It was the third significant severe weather event in KZN in just four years with the previous major flood since the 1980s occurring in 2019 and before that, in 2017. Multiple other less severe (but still significant) floods occurred in various parts of the country that same year. Several floods occurring in parts of the Eastern and Western Cape during 2023 also resulted in extreme losses.
As short-term insurance helps people, businesses and municipalities recover from the economic fall-out following a loss event such as a flood, it is an increasingly critical cog in the economy. Insurers must therefore focus on developing solutions to the risks imposed by the increasingly volatile environment. Technology can assist in doing so.
Using the 105 years of expertise and data at its core, Santam is merging this intelligence with technology to pioneer a new risk management underwriting tool to assist underwriters in de-risking against exposures. The Santam Underwriting Viewer, developed with geographic information systems (GIS) technology (also known as spatial intelligence) overlays geocoded addresses with scientific data sets to determine the exposure to specific perils at a given location – for the first-time allowing underwriters to see all the data layers they need to be aware of to apply appropriate policy conditions to a property.
Abroad, US, UK and EU insurers are well versed in using similar technology to aid with accurate loss forecasting and proactive risk management regarding hurricanes. All policies are geocoded and models have been developed to determine the threat of approaching hurricanes to estimate potential losses before a hurricane has even hit the ground.
Santam is one of the first insurers locally to deploy this kind of technology to solve problems and enable underwriting at an individual parcel/property level as opposed to postal code level. The risk data is used to classify parcels into risk categories with measures being applied according to the probability of flood in a particular area. Our aim for the future is to reach the international insurers’ level of science-backed decision making with the Santam Underwriting Viewer.
While clients are unaware of the application of the technology on the back end during our underwriting process, it carries immense benefits as it allows for site-specific underwriting and prevents attaching policy conditions to properties outside of the determined hazard area. Neighbouring plots can carry entirely different levels of risk, depending on their proximity to a flood line and elevation above a water source, for instance.
Beyond floods, Santam is in the early stages of developing a veld fire risk data set in the Viewer in correlation with Santam thatch accumulation on its personal lines policies where thatch risk applies. Small, localised studies have been completed; however, the methodology needs to be expanded at a national level to identify exposures to high-risk areas.
Factors that help determine the level of risk include the type of vegetation surrounding a property, history of wildfire, topography data such as slope, land cover and historical fire claim incidents in the area. The study results will enable the development of a fire hazard map and inform property mitigative measures and an appropriate fire risk rating to be applied to a property.
Not only does this data benefit insurers and policyholders, but in certain instances it can provide valuable intel for the public sector. We are working with local, district and provincial municipalities to provide them with risk management support and capacity building as part of our Partnership for Risk and Resilience (P4RR) programme.
The aim is for the collective data to eventually extend beyond insurance needs, to be used by, for example, spatial planners to inform spatial planning guidelines where there are data gaps in the planning process, to benefit communities. For example, in cases where there has been a lack of motivation and/or funding from district municipalities, Santam has carried out flood line estimation studies for some of South Africa’s largest rivers including the Crocodile and Vaal rivers.
This highly targeted approach to risk profiling is vital in combating the corrosive effects of climate change, and if adopted more widely by insurers, can help ensure the future sustainability of a thriving insurance industry, functional communities and the economic growth of our country.