Johannesburg - Companies and the South African government are gradually beginning to integrate potential threats posed by climate change into their strategies. Short-term insurer Santam has decided that understanding and managing climate change is essential to the company's continued existence.
According to Ray-Ann Sedres, the integrated sustainability manger at Santam, the group has committed itself to preparing for the risks posed by climate change.
International reinsurers believe the South African insurance industry is poorly prepared for the impact of climate change, says Santam in its 2007 sustainability report which was published last week.
North American and European insurers take the matter more seriously.
Increasingly unpredictable weather patterns and extreme natural disasters lead to more, and greater, insurance claims and threaten the sustainability of insurers.
American and European insurers have perhaps had to dig deeper in their pockets than those in South Africa.
The floods in Britain in July last year cost the insurance industry £3bn in claim payouts, said Malcolm McCulloch from Oxford at a recent conference on climate change.
In 2005 hurricane Katrina wreaked damage amounting to $84bn in the in the US. The 2003 European heat wave cost $13,5bn, and in 2002 floods in Europe $16bn. The floods in Britain in 2000 led to claims worth £1bn.
Sedres says Santam has adopted a business plan at top level, and has appointed a task team to deal with the impact of climate change from the perspective of risk management.
"We are accustomed to the impact of economic and climatic cycles on the gap between premiums and insured losses, but climate change is a different matter. More erratic climatic events create greater uncertainty, and lead to larger claims which inevitably result in higher premiums and more complex pricing structures. It's possible that certain risks and events will become no longer insurable."
Santam hopes to involve the insurance industry, the government and its clients in an intensive cooperative initiative on climate change, but it is first sweeping its own doorstep.
A survey was conducted last year to determine the amount of greenhouse gas emitted by sources directly or indirectly controlled by the company. This would lead to a better understanding of how to assess the impact of initiatives and improve Santam's own environmental impact.
"What is even more important is that we believe that every one of our employees must take full ownership of these issues and find ways to, for instance, cut down on travelling, save water and energy, and participate actively in recycling projects."
Electricity consumption a major issue
From this survey it appeared that electricity consumption was a major indirect source of greenhouse gas emission by Santam. Last year the two head offices in Cape Town were responsible for the release of 4 000 tons of carbon dioxide, based on energy consumption (from 241 kg/m2 of office space).
Business trips by staff resulted in the release of 1 800 tons of carbon dioxide, and the company's fleet of vehicles 2 400 tons.
Sedres says Santam has entered into a strategic partnership with The Enviropaedia, an environmental education programme for individuals and companies. This gives Santam access to information and resources to nurture awareness, as well as a network of organisations with a common interest in reducing exposure to environmental threats.
Santana is taking climate change so seriously that it's one of the 10 items on the agenda for a group board subcommittee. This is more forward-looking and proactive than many other South African companies can claim to be.
Sedres says that Santam aims, for instance, to encourage clients to use equipment that is more energy efficient than what they currently use. This has particular relevance to, for example geysers, which constitute a large portion of domestic insurance claims.
Sake understands insurers are considering encouraging householders to install solar-powered geysers, and working together with the installers of these geysers to ensure that the installation is technically correct. If it is done correctly, there is a likelihood that the geyser will last longer, thus reducing the insurers' claim risk.
At the same time this would make a contribution to reducing energy consumption.
Another way that will probably help protect avaricious developers from the impact of climate change and their own folly is to refuse to insure buildings built on flood plains or sand dunes, where they are more exposed to rises in the sea level or to heavy storms.
Help is already being offered from the legislative side, with the Bill on Integrated Coastal Management, which provides for the establishment of a coastal protection zone above the high-water mark, where certain activities will be prohibited, and which requires contingent control over development - such as stricter environmental impact studies. The envisaged legislation gives the state the power to prohibit development too close to the sea.
The risks of climate change pose a direct threat for the sustainability of insurers' existing business models. It is therefore entirely logical that Santana and other asset insurers will rapidly make plans to steel themselves against these risks. Moreover, if in their own interests to reduce the severity of climate change as much as possible.
Perhaps they will help startle the rest of us into making dramatic lifestyle changes.
- Sake