A group of South African actuaries has published the first iteration of the Mortality and Morbidity Impact Assessment Framework, according to a statement released by the Actuarial Society of South Africa (ASSA).
The group is leading the development of the framework designed to assist life and health actuaries in assessing and quantifying the potential impacts of climate change on the health and well-being of policyholders, says the statement. The actuaries formed the Climate Change Impacts on Mortality and Morbidity Working Party under the auspices of the ASSA Climate Change Committee in 2023.
Ms Pamela Hellig, a life insurance actuary and ASSA member, who is part of the group, emphasises that the framework is intended as a living tool that evolves in line with climate change developments and the needs of the industry it serves.
The framework was developed following the release of groundbreaking research in 2024 by a subset of the working party, which investigated the potential impacts of extreme temperatures on the mortality of South African policyholders. The research overlaid historical weather data with the claims data of 92,000 pensioners and 700,000 lives covered under funeral policies. Ms Hellig explains that this research, together with the new framework, provides a solid foundation for assessing potential climate change risks on insured lives.
Ms Hellig says while the short-term insurance industry is already feeling the impacts of extreme weather events like floods, wildfires and rising sea levels, the potential climate change impacts on life and health insurers are not well understood.
She adds that life and health insurers worldwide are grappling with modelling and quantifying climate-related risks and calculating insurance liabilities within a “tornado-sized funnel of doubt” because potential impacts are not immediate and less evident than in the short-term space.
However, given the increasing attention climate change is attracting from stakeholders, including the South African Reserve Bank’s Prudential Authority, insurers are under pressure to incorporate climate change risk into their risk governance, risk management, and Own Risk and Solvency Assessment processes.
“It may be the case that climate change is not expected to have a material impact on the mortality and morbidity of insured lives in South Africa, but insurers need to be able to justify their assumptions and provide evidence that a proportionate, risk-based assessment was performed to arrive at this conclusion,” Ms Hellig said.
She adds that as a start, insurers can use the framework to inform a relatively simple climate change risk assessment, to develop a more sophisticated and quantitative approach as the industry’s understanding of climate-related risk and its impacts on liabilities matures, and as gaps in data and modelling approaches are addressed.
Guiding assumptions
The measurement and management of mortality and morbidity risks are key to the work of actuaries developing products, calculating liabilities and managing capital in the life insurance and healthcare arena, says Ms Hellig. Therefore, she adds, it is essential for actuaries to begin assessing and, where possible, quantifying the impacts of these risks under climate change scenarios and prepare for their consequences.
Identified as particularly vulnerable to the impacts of climate change because of its geographical location and state of socioeconomic development, South Africa faces unprecedented risks which may have a significant effect on the health and well-being of people living in areas most exposed, says Ms Hellig.
The recently published framework lists examples of extreme climate change-driven events likely to be experienced in South Africa and matches them to potential health outcomes for people living in affected areas.
Ms Hellig says actuaries and anyone else fulfilling a risk management function for a South African life and health insurer are encouraged to use the examples provided in the framework as a starting point to identify climate change hazards that pose the most significant risks to the mortality and morbidity experience of their insurance companies.
Once hazards and indicators have been selected for each product type, insurers can begin to assess and quantify the expected impact of these hazards on their mortality and morbidity experience, concludes Ms Hellig.
She emphasises that there is no one-size-fits-all solution for insurers since different risk profiles determine the hazards most likely to impact mortality and morbidity. She adds that last year’s research into the potential impacts of extreme temperatures on the mortality of South African policyholders, for example, highlights that older policyholders are more vulnerable to extreme heat. In contrast, mortality as a result of extreme cold was higher amongst low-income earners.
Putting the Mortality and Morbidity Framework to work
Ms Hellig explains that the structure of the framework guides users through the steps of a typical risk management control cycle: identification of risks, assessment of potential impacts, management of risks, and ongoing monitoring and modification of the approach as the risk environment changes.
"The framework aims to guide the gathering and documenting of sufficient evidence to justify climate change risk assumptions and how insurers apply them. The outcome of this exercise should also guide insurers in the actions they can take now based on the level and nature of risks to which they may be exposed in the future.”