Africa:Continent faces economic losses of around US$500m in 1H2024

Natural disasters in Africa caused total economic losses of around $0.5bn in the first six months of 2024, says global reinsurance giant Munich Re in a blog, titled "The price of natural catastrophes in Africa: Insights into the most recent losses", posted on its website.

The tables below show the catastrophe events for the first half of 2024 and data for the previous five full years:

Munich Re surveyed 500 representatives in South Africa across various industries (including (Re)insurance, Agriculture/Forestry, Banking, Healthcare, Transportation) and across various positions within their organisations.

Overall, the concern about climate change is very high, whilst the willingness to invest in prevention is lower, though visible. The vast majority (86%) of participants said that they are concerned about the economic effects of climate change on their organizations. Furthermore, roughly 70% of participants claim that their level of concern has increased in the last decade, and they expect significant changes to weather disasters hitting their organisations.

Munich Re asked homeowners whether they have considered expanding their insurance coverage in response to increasing weather disaster risks. The vast majority of respondents (57%) indicated that they would want to expand their insurance cover. From the survey, it became clear that costs are the dominant factor for homeowners to shy away from buying insurance cover for weather disaster risks. 

One could argue that the increasing trend in loss cost can be explained by the increase in exposure over time (e.g. urban development, population growth, etc.) rather than climate change driving it. Exposure growth would have definitely contributed to increased overall losses, but to make the link between climate change and natural catastrophes, one could consider attribution studies. As an example – the World Weather Attribution organization found that the 2022 KwaZulu-Natal floods were in reality 1-in-20-year event. An event of this magnitude would have been rarer in a 1.2°C cooler world, with a return period of about 40 years. So even with a theoretically stable exposure base over time, climate change would lead to higher losses due to the increased frequency and/or severity of events.

In addition, in Africa, the insurance protection gap remains persistently high with insurance penetration typically well below 1%.

Given the changing landscape, Munich Re highlights a few levers that insurers could consider using to ensure a resilient future for the industry as a whole:

1. Data intelligence and portfolio steering: Insurers need to understand the location of their insureds at a sufficient level of granularity to be able to apply sophisticated risk selection. It is also important to have high precision accumulation control relative to risk appetite. Munich Re’s Location Risk Intelligence is a user-friendly software that enables users to quickly assess particular climate risk analytics for thousands of risk locations and can give insights to steer one’s portfolio in the context of climate change.

2. Pricing: Natural catastrophes should be priced for responsibly considering the expected increasing trend in the frequency and severity of these events. To price for natural catastrophes, a good understanding of it is necessary.

3. Risk mitigation: the insurance industry should continue to drive extreme weather awareness and risk management actions forward across the value chain.