News Release

February 17, 2017

Three Provinces on High Alert as Tropical Weather Disturbances Move In

Three provinces – KZN, Mpumalanga and Limpopo – are on high alert after the weather service warned that severe tropical weather conditions are set to hit the regions by Tuesday 14 Feb, and expected to last until the end of the week. A tropical disturbance is one of the first stages before a tropical cyclone and consists of heavy rainfall and strong winds.

According to Aon South Africa, risk advisors and insurance brokerage, in the last four years, weather-related damage has cost the South African insurance industry in excess of R3billion in losses. A report by Impact Forecasting, Aon’s catastrophe model development team, reveals that globally there were 315 natural catastrophe events in 2016 that generated economic losses of US$210 billion. For historical context, 2016 was the seventh highest year on record with the combined economic loss exceeding the US$200 billion threshold for the first time since 2013. The top three perils—flooding, earthquake and severe weather—combined for 70% of all economic losses in 2016.

Pieter Visser, a Catastrophe Analyst at Aon South Africa, adds: "Factors such as climate change, more intense weather events, greater coastal exposures and population migration shifts are all contributors to the growing trend in weather catastrophes. With these parameters in place, and forecasts continuing to signal greater risk and vulnerability, it is anticipated that weather-related catastrophe losses will further increase in the coming years. Locally, there were three substantial catastrophe events that impacted the reinsurance catastrophe market in South Africa. Two of these events were accompanied by heavy rainfall and flood events, which is noteworthy as the country has not witnessed many flood related losses in the last decade. The third event is the drought which is estimated to be the worst catastrophe that South Africa has experienced in decades," Visser adds.

"Other notable local natcats included tropical cyclone Eline in Feb 2000 which caused the catastrophic Mozambique floods that inundated large swaths of flood plains. One important source of this flooding was the Lowveld escarpment, which acts as a natural barrier that forces the strong onshore winds to rise adding to heavy rainfall. In 2000, many towns, especially along the escarpment received their annual rainfall amounts with the passage of the system. The biggest risk for South Africa from such tropical systems moving over the Lowveld is heavy rainfall along the escarpment that can lead to extensive flooding downstream in the Lowveld and Mozambique," adds Pieter.

Weather catastrophes put quality of insurance cover in the spotlight

According to Aon, the impact of climate change and weather catastrophes should motivate individuals and businesses to thoroughly assess whether they are properly covered for worst case, natural catastrophe scenarios with the help of professional advice. Insuring your most important assets – likely to be your vehicles, buildings, contents and even bottom line if you’re a business owner – along with your ability to recover from a major catastrophe, should be approached in the same way as investing in the stock market – you’re unlikely to do it without professional advice.

Mandy Barrett, Manager of Personal Lines Marketing & Sales at Aon South Africa adds: "Many people don’t fully understand their policy terms and provisions. If going the D-I-Y approach without professional advice, it’s unlikely that they will be able to differentiate what is being sacrificed if premium price is their only means of comparing insurance covers. Cheap insurance premiums are cheap for a reason – they usually cover only the absolute basics and any additional covers such as hail, flood damage and so on need to be purchased at an additional premium."

Many are also attracted to the appeal of heavily discounted premiums in return for much higher excess payments. Come claims time, consumers come face to face with the reality of what it really means to contract with a basic excess of 25% of the car’s retail value in return for a lower monthly premium - considering that on a vehicle valued at R200k, your excess could amount to R50k. Even if your damage is assessed at R60k, you’ll still be liable for the first R50k before any repairs are done to your vehicle. Very few people have this amount of hard cash in quick and easy supply, which would leave you without a car for as long as you cannot afford to pay the excess. "No-one really considers the aftermath of a disaster and what that means for you financially. However this is exactly what a broker or risk advisor is trained to do – the support and advice in structuring your insurance cover proves lifesaving in what could otherwise be a lose-all situation," explains Mandy.

Will your business survive the downtime due to a weather-related catastrophe?

Many businesses have the usual property and assets cover for their buildings, vehicles and other essential equipment. All good and well if you have an accident, theft or fire and your policy is able to take care of the replacement of the physical assets, but what happens if you are also unable to trade for weeks, even months and your revenue declines or even stops altogether as a result?

"If the only road to your luxury B&B in the Drakensberg is blocked off for a month due to a landslide or sinkhole, how would you recoup the lost income of no guest bookings? If your holiday resort was completely flooded and it took months to rehabilitate the site and rebuild it, how would you pay staff, taxes, suppliers and other costs.? None of these costs stop simply because you’re unable to trade due to a physical disaster or force majeure," explains Clayton Ellary, Senior Account Executive at Aon South Africa.

This is where Business Interruption insurance becomes a necessity. It can mean the difference between surviving a disaster with your profits and turnover intact, or shutting your doors, permanently. "The intention of Business Interruption insurance is to restore the business to the same financial position as if the loss had not occurred as well as to cater for additional increased costs/expenses incurred to minimise further loss of revenue and lessen the time to do so, subject always to the terms and conditions of the policy. Business interruption claims are normally linked to material damage/property damage. While your property or assets insurance covers the damage to physical property or equipment and replaces the actual assets, business interruption is vitally important to tide your business over in terms of the lost income as a result of physical damage, until you get back to operating your business as usual," explains Clayton.

With severe weather conditions - from golf ball-sized hail to heavy rainfalls, flooding and even tornados - set to increase in frequency and voracity, individuals and commercial businesses need to ensure that their insurance policies cover them comprehensively, not only for the physical damage, but for any alternative arrangements that need to be made while the damage is being repaired. By linking professional advice to an aligned insurance program that covers virtually all the 'what if’ scenarios of not only physical damage, but the knock-on implications too, Aon clients get to experience the real depth of value of a comprehensive risk analysis backed with professional advice and expertise.

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Tom Hatcher 7 Jun 2014 14:58 Comments Policy
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