Mitigating the increasing effects of climate change has become a top priority for South African insurers who have collectively paid billions of rand in related damages over the past five-10 years.
The increasing frequency and severity of weather events such as heavy rainfall and resultant flooding threaten the sustainability of insurers. which must protect the integrity of their balance sheets to continue paying claims for years to come. Harnessing the power of technology and geospatial data (including geocoding) 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 flood was one of the deadliest natural disasters ever recorded in South Africa. It was the largest single flood loss event on Santam’s books in its 105-year history, with R4.3bn paid in claims. Total losses were estimated at R54bn, of which R27bn was covered by the insurance sector. It resulted in R17bn in damages to essential infrastructure in the province, causing major disruption.
It was the third significant severe weather event in the province in just four years following major floods in 2019 and 2017. Multiple other less severe (but still significant) floods occurred in various parts of the country in 2022. Several floods in parts of the Eastern and Western Cape last year also resulted in extreme losses.
As short-term insurance helps people, businesses and municipalities recover from the economic fallout 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.
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
Santam is merging this intelligence with technology to pioneer a new risk management underwriting tool to assist underwriters in derisking 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 in applying appropriate policy conditions to a property.
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 made landfall.
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 postcode 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.
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 the 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 correlation with 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 exposure to high-risk areas.
Factors that help determine the level of risk include the type of vegetation and land cover surrounding a property, wildfire history, previous fire claims in the area and topography data such as slope. The data will enable the development of a fire hazard map and inform mitigation measures and an appropriate fire risk rating to be applied to a property.
Not only does this data benefit insurers and policyholders, but it can be valuable for the public sector. We are working with municipal and provincial authorities to provide them with risk management support and capacity building as part of our “partnership for risk and resilience” programme. The aim is for the collective data to eventually extend beyond insurance needs and be used by, for example, spatial planners where there are data gaps in the planning process. 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.
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 economic growth.
• Els is a technical specialist at Santam
