From January to June, the global average temperature was roughly 1.5°C higher than the pre-industrial level. Not only were average temperatures unusually high nearly everywhere in the world in the first half-year; record-breaking highs were also reported around the globe. The recent losses caused by natural disasters in Africa underscore the need for the insurance industry to address climate change. Building on over five decades of experience and our wealth of data, we draw attention to some aspects that insurers should consider when managing these risks.

At the end of July, Munich Re published its latest half-yearly report on global natural catastrophes.

Global overall losses from natural catastrophes in the first half of 2024 amounted to US$ 120bn of which the insured portion was about half – US$62bn¹. In 2023 we asked ourselves whether the US$ 100bn mark for insured losses suffered is the new normal. Given the latest figures, it does seem possible that the US$ 100bn mark could be exceeded by the end of 2024.

Globally, the majority of losses (68% of overall/economic losses and 76% of insured losses) are attributable to severe thunderstorms, flooding and forest fires (so-called “non-peak” perils).

Africa has not been spared – in the first six months of 2024, natural disasters in Africa were responsible for total economic losses of US$ 0.5bn. In Africa, the insurance protection gap remains persistently high with insurance penetration typically well below 1%. The tables below show the catastrophe events for the first half of 2024 and how it compares to the past five years.

Table 1: Summary of catastrophe losses in Africa compared to past five years

Table 2: Five largest natural disasters in Africa in the first half of 2024 

Munich Re has 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.

We asked homeowners whether they have considered expanding their insurance cover 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 studies². As an example – the World Weather Attribution organization found that the 2022 KZN 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 years³. 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.

Given our changing landscape, we highlight a few levers which 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 frequency and severity of these events. To price for natural catastrophes, a good understanding of it is necessary.
3. Risk mitigation: As an industry, we should continue to drive extreme weather awareness and risk management actions forward across the value chain.

Extreme weather will continue to impact society. We must all face the future with confidence, optimism, and a focus on securing our ability to adapt to change. By working together, we can help protect people and economies we all live and work in, from the negative impacts of extreme weather.