Scaling insurance for climate resilience in Africa

This report by Krutham, commissioned by the African Climate Foundation, examines the role of the insurance sector in enhancing climate resilience in South Africa. It analyzes the physical and transition risks facing insurers, the gaps in national and municipal disaster risk financing, and the potential for innovative insurance products—such as index-based and microinsurance—to protect vulnerable populations and infrastructure.

• South Africa is experiencing an increase in the frequency and intensity of natural disasters, with 31 events recorded between 2019 and 2024. These events threaten key economic sectors, with projected GDP losses of up to 5% by 2050 if global warming exceeds 2°C.
• South African insurers face significant transition risks due to the economy's heavy reliance on carbon-intensive industries, particularly coal, which accounts for over 70% of primary energy consumption. This exposure makes the sector vulnerable to asset devaluations and regulatory changes associated with decarbonisation.
• Despite a sophisticated risk-layering strategy, South Africa faces an annual disaster funding gap of R2.3bn. The National Treasury relies heavily on budgetary mechanisms and contingency reserves, which are sometimes depleted by non-disaster spending, such as public sector pay increases.
• Sub-national governments struggle with disaster risk reduction (DRR) and adaptation due to poor planning and low grant utilisation. In 2023/24, the Municipal Infrastructure Grant (MIG) and Integrated Urban Development Grant (IUDG) had utilisation rates of 49.3% and 46.7%, respectively.
• South Africa has a high insurance penetration rate of approximately 10%, but non-life insurance remains stagnant at around 2.5% of GDP. Affordability is the primary barrier for low-income households and smallholder farmers, with less than 1% penetration among the latter.
• The insurance sector utilizes innovative models like cell captives, where licensed insurers create distinct cells for specific risks. Additionally, tech-enabled solutions like Lumkani combine early warning fire detection with affordable insurance for informal settlements, saving an estimated R142m in property over five years.
• Index-based insurance, which uses triggers like soil moisture rather than traditional loss assessments, is being piloted by Santam and the Land Bank Insurance Company to support smallholder farmers, though it currently requires case-by-case approval from the Prudential Authority.
• Public-Private Partnerships (PPPs) for climate adaptation are hindered by rigid, cumbersome approval processes and a lack of differentiation based on project size. National Treasury has proposed amendments to exempt projects under R2bn from certain approval requirements to accelerate smaller initiatives.
• The report recommends integrating weather-based index insurance into the existing social grant system managed by the South African Social Security Agency (SASSA), leveraging its infrastructure to reach nearly 30 million grant recipients.
• The Prudential Authority has issued guidance notices in 2024 to help insurers incorporate climate-related risks into governance, strategy, risk management, and metrics, aligning with the Solvency Assessment and Management (SAM) framework.

APA

Schultz, C. (2024). Scaling insurance for climate resilience in Africa. African Climate Foundation. https://africanclimatefoundation.org/wp-content/uploads/2026/06/SouthAfricaFinal2December.pdf

Chicago

Schultz, Cecilia. Scaling insurance for climate resilience in Africa. African Climate Foundation, 2024. https://africanclimatefoundation.org/wp-content/uploads/2026/06/SouthAfricaFinal2December.pdf.

Wikipedia

{{cite report |last1=Schultz |first1=Cecilia |title=Scaling insurance for climate resilience in Africa |publisher=African Climate Foundation |date=2024 |url=https://africanclimatefoundation.org/wp-content/uploads/2026/06/SouthAfricaFinal2December.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{schultz2024scaling, author = {Schultz, Cecilia}, title = {{Scaling insurance for climate resilience in Africa}}, institution = {African Climate Foundation}, year = {2024}, url = {https://africanclimatefoundation.org/wp-content/uploads/2026/06/SouthAfricaFinal2December.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }