South Africa: April 13-14 rain raises fears of increased insurance claims

(Ecofin Agency) – When incidents occur, insurance firms are under pressure because they are required to compensate their clients. In South Africa, insurers were already obliged to disburse record amounts to cover Covid-19 related claims. With the rains that forced President Cyril Ramaphosa to declare a state of natural disaster, fears are high that insurance claims may reach another record level this year.

On April 13, 14, 2022, South Africa was hit by heavy rains that claimed the lives of 443 people while dozens are still missing. Hundreds of survivors are hospitalized and some of them are in critical condition. All those factors raise fears of a surge in insurance claims, in the life insurance segment particularly.  

In the country, insurance penetration is very high. So, in case of major incidents, insurance firms are always likely to settle huge claims. For instance, they are yet to recover from the claims disbursed to settle the losses caused by Covid-19.  

According to the Association for Savings and Investment South Africa (ASISA), South African life insurers collectively paid ZAR564.4 billion (US$37.2 billion at current exchange rates) in Covid-19 related claims to their clients.  The recent bad weather could add to the bill because its consequences may include job losses and suspension of economic activities.  

The insurance industry usually pays close attention to major incidents because part of their income comes from investments, and another (the highest part actually) from margins realized when there are fewer claims to offset.  

South Africa recently declared a national state of disaster. The decision is likely to ease costs for insurers but, on the Johannesburg Stock Exchange (JSE), investors’ reactions were mixed. 

The market capitalization of big insurance players such as Old Mutual, Discovery, and Momentum Metropolitan Holdings dipped by 6% to 15% in the last 30 days, according to data provided by Capital IQ. On the other hand, the shares of insurers like Sanlam, which have a diverse geographic presence, are more stable.   

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