Santam insurance warning

The rise in extreme weather events in South Africa is making insurance coverage increasingly difficult to price and provide in some parts of the country. 

This, combined with rising reinsurance costs globally, is limiting insurers’ ability to withstand the impact of once-off catastrophic events. 

As a result, insurers have to invest heavily in mitigating these risks, developing new ways of handling claims, and developing newer technologies. 

Santam’s Insurance Barometer for 2025 provided a comprehensive overview of the local insurance landscape, shaped by global environmental, geopolitical, and macroeconomic forces. 

Santam CEO Tavaziva Madzinga, in his introduction to this report, said the two years since the last report have been characterised by increased weather volatility, a cost-of-living crisis, and geopolitical tensions.  

This has prompted insurers and reinsurers to re-evaluate coverage and their underwriting practices to ensure the sustainability of their businesses. 

In particular, the past year has reaffirmed what reinsurers and risk professionals have warned about for some years. 

Madzinga said insurers are now operating in a new environment defined by frequent and severe weather-related catastrophes. 

A decade ago, insured losses from global natural disasters rarely exceeded $100 billion in a year. Today, that level of loss is common and expected, Madzinga said. 

Events usually considered once-in-a-century now happen roughly every 20 years, with a major catastrophe occurring every three to five years. 

This is most notable globally, with the January 2025 California wildfires causing around $40 billion worth of damage. 

These events highlight the compounding nature of extreme weather risks and underinvestment in infrastructure and resilience, with economic losses often far worse than necessary. 

The rise of these events globally impacts the price of reinsurance, with reinsurers demanding higher premiums for coverage in specific areas. 

This puts insurers in a difficult position. They must risk raising their own prices, reducing affordability, or limiting coverage, which would exacerbate the impact of an extreme event. 

South Africa at risk 

Global catastrophe patterns are mirrored locally, with South Africa’s infrastructure challenges exacerbating the impact of severe weather events. 

South Africa’s 2022 KwaZulu-Natal floods remain the country’s costliest insured event, with claims totalling R15 billion to R17 billion, and an estimated total economic impact of R54 billion. 

This highlights the persistent gap between insurable losses and overall economic losses, which poses a major threat to the local economy. 

Madzinga said that in areas where risk is poorly understood or where failing infrastructure amplified the impact of extreme weather, insurance coverage becomes increasingly difficult to price and provide. 

This is particularly concerning as urban development continues in flood-prone or inadequately serviced areas. 

Santam has witnessed first-hand the ongoing expansion of building activity into high-risk areas, such as floodplains in Ladysmith and St Francis Bay and dolomitic zones like Centurion.

This translates into a higher average cost per claim for insurers, which necessitates either an increase in premiums charged or reduced coverage. 

To limit these increases, insurers can implement higher excesses for selected risks, segmented premium increases, and enhanced selection and rating. 

In South Africa, in particular, insurers have adapted by making infrastructure a core underwriting consideration to help them price premiums. 

Madzinga said insurers are increasingly exposed to knock-on effects from deteriorating roads, delays across rail and port networks, ongoing electricity shortages, and water supply challenges. 

This warning echoes that of the Reserve Bank, which said there is a widening insurance gap in South Africa due to the increased frequency of extreme weather events. 

While the country used to be a catastrophic event free zone, the scale and frequency of flooding, fires, riots, and droughts have resulted in a significant shift.

This has resulted in rising uninsurable risks, which insurance companies explicitly exclude from available coverage. 

This is predominantly due to the rising cost of coverage in areas plagued by extreme weather, making it economically unviable for insurers to offer traditional products.