Reserve Bank Governor warns of serious threat to South Africa

A significant insurance gap related to natural disasters in South Africa presents a serious threat to the country, leaving households, businesses and the government dangerously vulnerable.

This gap, currently standing at around 71% in South Africa, could also exacerbate the country’s growth problems and hinder development for years or even decades.

This is according to Reserve Bank Governor Lesetja Kganyago, who spoke about this threat at a side event during the July 2025 meetings of the G20 Finance Ministers and Central Bank Governors.

The event focused on identifying and addressing insurance protection gaps, specifically those caused by natural disasters.

In recent decades, damages and losses from natural disasters have increased due to the rising frequency and severity of extreme weather events, which are exacerbated by climate change. 

While insurance markets play a crucial role in mitigating the financial impacts stemming from these damages, their ability to offer adequate coverage is increasingly being challenged.

This has led to a widening insurance protection gap against natural catastrophes, with countries worldwide facing this challenge.

In 2023, the global insurance protection gap was estimated at 62%, with gaps exceeding 90% in some emerging markets.

Kganyago estimated that South Africa’s gap is 71% and said this leaves the country’s households, businesses, and government “dangerously exposed”.

He warned that uninsured losses from natural disasters can undermine economic stability, threaten the solvency of financial institutions and disrupt credit flows.

“Moreover, when governments must step in with emergency funds or debt finance reconstruction, it places additional strain on already limited fiscal space for central banks, policy makers and supervisors,” he said.

The number of extreme weather events in South Africa is increasing, becoming more severe, and resulting in higher financial losses.

Santam’s chief underwriting officer, Michael Cheng, recently explained that local extreme weather-related losses were less severe in 2023 and 2024, with a similar number of events occurring in both years.

However, the total claims from events exceeding R100 million per event increased in 2024, with these events occurring across wide geographic areas. 

Risks are growing

A recent example of the financial losses related to natural disasters in South Africa is the June 2024 floods, which affected the Eastern Cape and KwaZulu-Natal.

The cost of damage from these floods was estimated at more than R1.3 billion in KwaZulu-Natal.

Two years earlier, the 2022 KwaZulu-Natal floods became the country’s costliest insured event, with claims totalling just over R15 billion and an estimated total economic impact of R54 billion.

Kganyago explained that bridging the protection gap for these types of natural disasters is part of building macrofinancial resilience.

“It calls for stronger risk-sharing mechanisms, improved data and modelling of climate-related risks and innovative insurance solutions such as parametric instruments, catastrophe bonds and regional risk pools,” he said.

The governor explained that ensuring financial resilience in the country’s climate and development strategies will require collaboration between several players.

This includes governments, insurance supervisors, the private sector, international organisations, multilateral development institutions, and local communities.

In 2024, BusinessLive reported that the South African Special Risk Insurance Association (Sasria) is looking to extend its cover to natural disasters and climate-related risks.

State-owned Sasria provides coverage against special risks such as civil commotion, public disorder, strikes, riots, and terrorism.

In the company’s 2023/24 annual report, it mulled creating a natural disaster pool focusing initially on drought insurance for emerging farmers.

“We must recognise that resilience is not only built in the aftermath of disasters, but in the deliberate and proactive planning and actions before they occur,” Kganyago said.

“Insurance is not a luxury. It is a foundational and critical tool for sustainable development.”