Rise in disasters triggers review of risks

Ini Salgado in Business Report (South Africa): The catastrophe in Japan triggered by last week’s earthquake, tsunami and nuclear scare underlined the need to deal with the rise in risks from natural disasters, short-term insurer Santam’s head of strategy, Vannessa Otto-Mentz, said this week. “Before Japan it was the earthquake in Christchurch, the floods in Queensland, the Russian fires and drought, the Vaal and Orange River floods,” she said. “It punctuates the fact that risks are increasing, and something needs to be done.”

German reinsurer Munich Re’s latest disaster report counted 950 natural disasters worldwide last year, compared with an annual average of 785 over the past decade and 616 over three decades. Major global catastrophes killed 295 000 people last year and caused losses worth $130 billion (R918bn), nine-tenths of them due to severe weather-related events.

In Johannesburg this week, the UN Environment Programme (UNEP) Finance Initiative kicked off a consultation process around a set of principles for sustainable insurance to deal with environmental, social and governance risk, aimed at facilitating different approaches to underwriting, claims management and investment.

Because the industry was going to have to pay out greater claims, it would have to shift from its role as a risk carrier to a risk manager, said Deon Nel, the head of ecological research at the Council for Scientific and Industrial Research, who is conducting research for Santam on natural disasters in the Eden district. Nel’s initial findings indicate that changes to the district’s ecological buffering capacity, such as the removal of wetlands for agriculture, have at least as much impact on river zones as severe weather events.

Nel believes the insurance industry can deal with increased risk either by designating arbitrary boundaries beyond which it will not insure, or by adopting a model of shared risk that incentivises policyholders to become proactive risk managers. Otto-Mentz, a member of the working group that drafted the UNEP sustainable insurance principles, said South Africa could learn from and apply Japan’s preparedness for earthquakes to its own risks, including those arising from floods, fires and dolomitic damage on the Witwatersrand….

Flooded level, West Driefontein mine. The dolomite overlying the gold reefs hosts much groundwater, giving the mines flooding problems. Shot by Babakathy, who has released the image into the public domain