"As underwriters of natural catastrophe risks, insurers are acutely aware of the risks posed by climate change," said Forgeron. "Natural catastrophes already have the potential to cause hundreds of billions of dollars of damage in a single year, and climate change could make this even worse."
Ms Pamela Ramagaga, GM: Insurance Risks at the South African Insurance Association (SAIA), attended a recent GFIA webinar where again, it was highlighted how crucial the insurance contribution was to resilience. Ramagaga said the Build (Back) Better programme was an excellent example of how insurers could support the shift towards a more resilient and sustainable society. SAIA is a member of the GFIA and is fully supportive with regards to highlighting climate risk as one of the top risks.
“We can support this initiative by adopting measures, such as providing information and recommendations to public authorities regarding implementing better building standards,” said Ramagaga.
“South Africa is not immune to the dangers of climate change—or that of the climate change denialists—and SAIA welcomed the GFIA's proposal for a Working Group to develop recommendations promoting resilience.”
SAIA has been working with several stakeholders in South Africa investigating how a climate change regulatory mechanism could be developed and implemented, and therefore extensive work by the non-life insurance industry is being done in the background. The Task Force for Climate-related Financial Disclosures (TCFD) are not yet a requirement from the Prudential Authority, but SAIA is already involved in this within the National Treasury sub-committee that deals with this risk.
As was pointed out by Forgeron, the insurance sector must be proactive in minimising the effects of climate change through collaborative efforts of the public and private sectors. Our industry must play a part, he said, "in providing its expertise to public authorities on how to best shape adaptation efforts and as a bearer of natural catastrophe risk".
Additional methods of promoting resilience would be by acknowledging climate issues and improving and building regulations, such as encouraging using green methods and materials in construction and promoting long-term sustainable investment in infrastructure projects.
Other tools would look at Compensatory Disaster Risk Management. This would involve a mix of different financing instruments, including the insurance and reinsurance sectors, to deal with the residual risks that impact the social and economic resilience of individuals and societies.
According to a recent report published by the Deloitte Centre for Financial Services, Climate Risk: Regulators sharpen their focus, the increase in "extreme weather-related events" has put climate-related risks for insurers under the regulatory microscope.
The UK's insurance regulator—Prudential Regulatory Authority—in seeking greater financial resilience, placed climate risk on insurers' stress tests, while one United States regulator stated, "damage from climate change could end up being as severe as the fallout from the mortgage crisis triggering the 2008 financial crisis".
Understandably, regulators are concerned. After all, consumer protection is their responsibility. Consumers, who are increasingly aware and responsive to the perils of climate change, are worried about the affordability and availability of their premiums, which may be constrained either due to escalating insurance costs and restricted or zero-coverage in certain areas. The task falls on the insurance sector to implement climate change risk management strategies and standardised disclosures - provide more information - to address it.
On Earth Day, we should reflect on what we can do as an industry in the face of climate change. The Deloitte report lists several "opportunities" to address our readiness for long-term climate risk. First, organisations must raise awareness of climate change and its risk and incorporate sustainability performance into the corporate culture. Second, we need to educate our consumers and encourage them to take proactive steps towards mitigating climate change. Thirdly, to do this requires collaboration between government, regulators, and other stakeholders to make sustainability a critical factor when developing "preventative and adaptive" policies that support a climate-resilient future.
As risk managers, SAIA members and investors, the African insurance industry has a key role to play in promoting economic, social, and environmental sustainability - in other words, sustainable development - including ensuring a sustainable recovery from the COVID-19 pandemic. It is in this spirit that on 21 April 2021, SAIA, under the auspices of the United Nations Environment Programme’s Principles for Sustainable Insurance Initiative (PSI) also signed the Nairobi Declaration committing to support the achievement of the UN’ Sustainable Development Goals (SDGs).
In his farewell speech as Secretary-General of the United Nations, Kofi Annan quoted an African proverb: "The earth is not ours but something we hold in trust for future generations."
We need to believe that the insurance industry's efforts to address climate change will have a lasting effect on the status of this "trust" that we hold, and because climate change is a systemic risk, it takes the collective effort of both the insurance industry and the government for a resilient future.
- Ms Pamela Ramagaga is the General Manager: Insurance Risks at the South African Insurance Association (SAIA)