Managing risks of severe weather conditions is essential as under-insurance leaves individuals and businesses facing financial ruin in major weather catastrophes

In Aon Benfield’s latest Weather, Climate and Catastrophe Insight Report, 2017 was flagged as the costliest year on record for natural disasters. The global economic cost of natural disasters in 2017 clocked in at a staggering US$353 billion, while the insured cost was US$134 billion. 

“It would also be remiss to believe that South Africa is not affected by its ample share of natural catastrophes.   The Knysna fires in June 2017 racked up R1.95 billion in insured losses, while October 2017 storms came in at R2.05billion – some R4billion in a 180-degree flip between fire and flood in just a five-month stretch,” says Pieter Visser, Catastrophe Analyst at Aon Benfield Analytics.

As cities in South Africa continue to grow, buildings and structures cover the landscape more densely, inevitably equating to a greater accumulation of risk.  “The main factor for increased losses is larger more concentrated exposure, which means that if there is a natural disaster, more households, businesses and people are affected than fifty years ago,” explains Pieter. 

Despite the fact, Individuals and businesses are increasingly under-insured for the financial impact of these events, as weather-related property and business interruption insurance claims continue to grow.  

Under-insurance leaves households and businesses exposed to financial ruin

Weather events over the last few years have left no disputing that South Africa has seen a marked increase in the frequency and intensity of severe weather conditions with greater accumulation of exposure within citiesand suburbs that are more densely populated. 

“Events in 2017 – from crippling drought to blazing infernos to raging hail storms - highlighted just how vulnerable we are to climate change.  Consensus from meteorologists is that South Africa should brace for a new normal of abnormally heavy rain and hail storms, powerful winds and drought conditions in many regions. With the October to January stretch ahead of us - traditionally the months that have tallied the most severe weather events and financial losses - there is a need for extra precautions and insurance scrutiny,” says Mandy Barrett, Head of Marketing & Volume Sales at Aon South Africa. 

“When planning insurance covers – for your personal or business assets - the clarion call is to never assume the worst cannot happen.  Many people believe that the likelihood of a catastrophic event such as a fire, flood or severe hail storm is unlikely, and as a result neglect to properly insure their property, with devastating financial consequences,” explains Mandy.

While many households and businesses owners are understandably looking to reduce costs and overheads in a tough economy, the need to do so without compromising your ability to recover financially from an insured peril is crucial.  

Aon provides the following important tips when reviewing your insurance:

• Correctly insure your biggest investments - Your property, buildings, equipment and vehicles are likely to be your biggest financial investments and the foundation of your safety, security and standard of living.  Given the significance in your life, these assets need to be correctly insured should you suffer a major catastrophe. 
• Never assume the worst cannot happen - Many people believe that the likelihood of a catastrophic event such as a fire or flood is unlikely, and as a result neglect to properly insure their property and contents. 
• Keep your policy up to date - Any alterations, improvements and new purchases add to the value of your asset base.  Check that your insurance cover accommodates the additional value, whether you need to specify these improvements and so on. Also, make sure that any building work is done according to council approved building plans and by a builder registered with the NHBRC – if things go wrong and your plans and builder are not up to spec, your insurance is unlikely to pay out.
• Contents Insurance - Insure the contents of your entire property, not just what you think may be lost, stolen or destroyed as a result of an insured peril. An asset register is an incredibly useful tool to keep track of all your items – make a note of make, model, serial numbers and purchase value and date for a comprehensive register.  And remember, while you may not think you’re at risk for a burglary due to being in a security complex or environment, a fire or flood is a completely different story. 
• Avoid under-insurance - If you are under-insured in the event of a claim, you may be paid out only partially for the loss due to the average formula being applied. If you insure contents (your moveable assets) for R250 000 but the replacement value is actually R500 000, you are then effectively 50% under-insured, and average will be applied and only 50% of the claim will be paid.  A professional evaluation coordinated through your broker is invaluable in avoiding underinsurance. 
• Are your sums insured still sufficient?  From a business perspective, the rallying Rand puts the replacement value of imported plant and equipment in sharp focus – consider the impact of replacing plant and machinery procured when the exchange rate was R10 to US$1, versus the current R15 to US$1.  Likewise, personal designer goods, watches and imported gadgets will be significantly more expensive to replace at today’s rates than they were a few years ago.
• Get Business Interruption cover for your small business - many businesses have the usual property and assets cover for their buildings, vehicles and other essential equipment.  But what happens if you are also unable to trade for weeks or months as a result of a fire or flood? How would you pay staff, rent, taxes, suppliers and so on if your business and all your stock and assets burnt down? None of these costs stop simply because you’re unable to trade due to a physical disaster.  Business interruption is vitally important to tide your business over in terms of the lost income as a result of physical damage or insured peril, until you get back to operating your business as usual.
• Play your role in managing your risk - Insurance companies are not set out to avoid settling claims. But it is important that you understand the terms of your insurance agreement, which is a contract between you and your insurer and play your role in the risk management.

“Discuss your insurance needs with an Aon expert broker by your side and get good advice and expertise based on real-life experience on your side to make sure you are comprehensively covered for all eventualities.  The growing risks presented by extreme weather patterns demands that you review your insurance needs in detail and get impartial and professional advice to ensure your cover puts you back on your feet,” concludes Mandy.