Freak Joburg hailstorm to hit insurers hard

Johannesburg’s severe hailstorm this week is the latest headache for the insurance industry that could cost it dearly as it sifts through the influx of claims following the freak event.

On Monday parts of Johannesburg, including Midrand, Braamfontein and Bryanston, were ravaged by an overnight hailstorm that caused severe damage to vehicles, businesses and homes.

Although insurers, in the aftermath of the storm, are still counting the costs of the extreme weather event, some have already reported a significant increase in claim volumes from policyholders affected by the incident.

Read: South Africa’s destructive storm surges …

Naked Insurance co-founder Ernest North told Moneyweb that so far, the number of claims received from policyholders affected by Monday’s thunderstorms shows signs of this event being the worst to hit the insurance provider in the last three years.

“Early indications are that this is probably the biggest event that we’ve had in the last two or three years,” he said.

“If we look at the number of claims which we’ve already received instantly last night [Monday], it’s a large number of claims, hundreds of claims were already submitted last night, and then hundreds more were submitted this morning [Tuesday].”

Naked Insurance – which was founded in 2016 and is backed by short-term insurer Hollard – offers car, home and building insurance. Although the firm has a presence across the country, client penetration is highest in Gauteng.

It said it has received more vehicle-related claims than buildings and home-contents claims – an indication that many people were still on the road and were caught in the storm when it broke out.

North said that the extent of the damage caused indicates that most vehicles can still be repaired, but there are expectations that quite a few will result in vehicle write-offs.

Read:
SA may escape worst of El Niño as good rains forecast
Santam posts shiny results, but harsh weather claims drag

JSE-listed short-term insurers Santam and OUTsurance both released statements on Tuesday acknowledging receiving claims calls or enquiries from policyholders following the catastrophic weather event.

OUTsurance, in an emailed response to Moneyweb’s questions, said it is too early to accurately quantify the impact of the storm on the business, but acknowledged higher claim volumes following the storm.

“Whilst the volume of calls and claims is high, we are well equipped to handle the influx of claims. A large percentage, more than 50% currently, of claims are being registered by our clients directly on the OUTsurance app,” OUTsurance said.

Weather risk increasing

The severe hailstorm in the country’s economic hub adds to other events that point to a growing risk of extreme weather-related incidents for the insurance industry.

Most insurers are still adding up the costs of the storms that hit coastal areas in mid-September, causing damage to cars and flooding homes, and before that, several other devasting climate-related events were recorded in the country.

Following the floods in the Eastern Cape in February, the provincial government estimated that it would cost about R4.5 billion to fix and repair damaged road and bridge infrastructure.

Read: SA releases emergency funds for deadly floods on east coast

According to the KwaZulu-Natal provincial government, the devasting floods that occurred in 2022 caused an estimated R17 billion worth of damage.

All this illustrates the extent of the destruction that has come along with the greater incidence of weather-related catastrophes that have hit the country in recent years, ultimately upping the stakes for the insurance industry.

Listen to Nzinga Qunta’s interview with Santam CEO Tava Madzinga about the impact of the KZN floods on the business:

You can also listen to this podcast on iono.fm here.

North expressed concern about the growing incidence of weather-related disasters, adding that insurers are keeping a close eye on climate change as a growing risk and that, ultimately, greater frequency of such events will result in higher premiums.

“The importance of understanding the weather patterns and understanding the likelihood of these things happening when we estimate the risk and when we determine what premium we charge people in different parts of the country [has] always been very important and it’s getting even more important,” he said.

“I think, unfortunately, the reality is that on average, across all insurers, it is almost inevitable that premiums are going to be going up on average,” North added.

‘Catastrophe Claims Management’ protocols

“Because of the nature of a claims process, it is too early to quantify the extent of the damage or how much claims could possibly amount to,” Santam executive head of claims Fanus Coetzee said in a statement on Tuesday.

“What we do know however is that the frequency and severity of extreme weather events is increasing, and we would advise policyholders in affected areas to take precautions where possible,” he added.

Santam noted that this week’s weather events called for the activation of “Catastrophe Claims Management protocols” which will, among other things, allow the insurer to conduct preliminary assessments of damage to determine the most urgent claims cases.

“Our first step on the hail-damaged vehicles, for example, is to conduct triage on all the incoming hail damage claims to ensure that we prioritise repairs on vehicles rendered non-drivable and non-roadworthy due to damaged windscreens and lamps.”

“We have deployed rapid response teams to the affected areas and are assisting affected clients to deal with the aftermath of the hailstorm,” Coetzee added.

Read:
Storms batter the Western Cape
Insurers still counting the costs of the Cape storms

Catastrophe reinsurance is a way for insurance providers to share the financial risk that comes with major catastrophic events with their reinsurers.

According to North, Naked Insurance expects the aggregate damage caused by Monday’s hailstorm to exceed the level required for the insurer to claim for reinsurance protection.

This will however hold no bearing on policyholders and all claims will be paid out as long as they adhere to the signed agreement between the policyholder and the insurance provider. However, because of the high volume of claims the insurer must deal with, claimants might have to wait longer than usual for claims to be finalised.

“We are going to do our best to have most of those claims finalised as soon as possible – hopefully most of them before the end of the year. But realistically, when there is an event like this, there is typically an extra week or two that it takes … because there are so many people claiming,” he said.

No end in sight

Unfortunately, a statement issued by the South African Weather Service on Tuesday noted that no end seems to be in sight and extreme weather conditions are expected to continue.

“The El Niño-Southern Oscillation (ENSO) is currently in an El Niño state and according to the latest Predictions, is expected to persist through most of the summer months …

“Weather extremes will continue to occur from time to time during the summer season as much as drier conditions are expected,” it said.

Listen to this Moneyweb@Midday podcast with Jeremy Maggs (or read the transcript here):

You can also listen to this podcast on iono.fm here.

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