Back to News

Building resilience amidst climate change threats

Insights 30th November 2022

Building resilience amidst climate change threats

A version of this article by Group Chief Executive and Managing Director, Manoj Kumar was first published in the November edition of FA News.

Extreme weather events are becoming increasingly frequent across the globe, and ensuring businesses and macro-economies remain resilient through such events is a vital consideration. Over the next decade, governments worldwide, working hand in hand with scientists, will face a unique set of challenges as the threats from climate change continue to dominate the political landscape.

Across Africa, there has been a marked increase in extreme weather events, including severe rainfall in Zambia in 2020, where nearly 3000 hectares of crops in Namwala District were devastated.  Flooding from the Niger River that same year destroyed 10,000 hectares of crops in farms across West Africa. In South Africa, droughts have steadily increased over the last 20 years. The recent 2018 – 2021 drought, for example, limited Cape Town to using less than 10 percent of its usable water for its 4 million residents at some points. The dangerous impact of these events on food security and general wellbeing are clear to see.

With more than 60% of the population of sub-Saharan Africa being smallholder farmers, the resilience against extreme weather events in this region is low. The Global Report on Food Crises from the World Food Programme reports the number of people in Africa facing food insecurity and requiring humanitarian assistance rose by 40% to 100 million from 2019 to 2020, largely as a result of reduced crop yield due to extreme weather.

However, a variety of solutions are being put forward to maximise climate resilience, particularly in South Africa. The Climate Change Bill, for example, is currently going through the South African Parliament, and will become the first legal framework to respond to the consequences of climate change, and will enable a long-term transition to a low-carbon economy. Furthermore, the World Bank has recently approved a $2.3 billion (R40.3 billion) programme to help countries in Southern Africa grow the resilience of their food systems whilst ongoing research in South Africa is taking place to make cassava, the staple food of nearly 1 billion people worldwide, withstand extreme conditions.

Alongside the important work of the South African Government and scientists, insurance can play a vital role in increasing the resilience of businesses and economies as they continue to fight against climate change. Agriculture insurance providers have developed and adapted their services to limit the impact of extreme weather on food security. New products have been created to enable rapid  financial compensation when communities are hit by loss triggering events.

The greatest change to agricultural insurance will be seen through the widespread adoption and use of Parametric insurance. The real benefit of this specialty is that it covers the entire economic impact of extreme weather events, and can help businesses and governments recover quickly and efficiently during these challenging times. The sector is highly experienced in designing and implementing weather index-based insurance schemes, which are transparent and easy to understand and to administer, and use reliable third-party, independent data.

The parametric approach leverages the latest technological developments to address excessive wet periods, hurricane damage, extreme heat or flooding. The value of integrating digital technology is clear, with satellite mapping and virtual weather stations opening opportunities for insurers across Africa.

The recent rise of parametric insurance across the continent has ensured vulnerable communities are quickly and fairly paid out after catastrophes. As parametric payments do not require loss adjusting on the ground, loss settlements can be made quickly by insurers to remote locations. If there has been a drought or extreme rainfall, and the product is triggered, the money can be with the customer without delay, meaning there is little time difference between the event and paying the farmer.

Countries such as Madagascar have embraced this form of insurance, being the first African country to take up African Risk Capacity’s parametric cyclone insurance protection. After several severe weather events in 2022, ARC paid a claim of US$10.7 million (R187 million), which was efficiently used to direct emergency aid to the most vulnerable areas, undoubtably saving lives.

The decisions therefore made by the South African Government and regulators on parametric insurance in the next five to ten years could greatly contribute to the global fight against the serious impacts of climate change.

Latest News