In the wake of devastating storms and mounting government bailouts, South Africa is exploring a bold new approach: securing flood insurance for some of its largest and most vulnerable cities.
The proposal, currently under study, involves parametric insurance — a form of coverage that pays out when a predefined event, such as a specific level of rainfall, occurs. Unlike traditional insurance, parametric policies do not require detailed loss assessments, allowing for significantly faster payouts.
The idea is gaining traction following a string of extreme weather disasters. In July last year, Cape Town recorded historic rainfall, damaging tens of thousands of homes. Earlier in 2022, torrential rains in Durban led to the deaths of at least 459 people. The coastal city of Gqeberha was also hit by severe flooding last year.
“The cost of disasters, both climate-related and other, has risen significantly over the past several years,” the National Treasury said in a policy paper released Friday. “Disasters are often financed through reprioritization of money from essential services such as education, health and safety.”
The Treasury emphasized that adopting parametric insurance would require legislative amendments. The current study forms part of a broader disaster risk mitigation plan being developed in partnership with the World Bank.
AXA Climate, a division of French insurance giant AXA SA, has been commissioned by the World Bank to conduct the study.
In a separate interview last month, Mpumi Tyikwe, CEO of state-owned insurer Sasria SOC Ltd., confirmed that his firm intends to expand into climate-disaster insurance as South Africa faces rising climate-related risks.
The move signals a shift in how the country may approach disaster resilience in the years ahead, potentially creating a model for other climate-vulnerable nations.
