Climate change to hit property

Cape Town - Already faced with rising interest rates, property owners, especially in coastal areas, can add climate change to the list of worry factors they will face in the future.

Earlier this month, the results of a preliminary sea level risk assessment were presented to the City of Cape Town's planning and environment portfolio committee by Lucinda Fairhurst from consultants LaquaR CC.

While the authors stressed that more work was needed, the study suggests that climate change is likely to have consequences for Cape Town's ability to resist sea flooding along its 307km of coastline.

Fairhurst identified vulnerable areas as Woodbridge Island in Milnerton, Fish Hoek, Strand, Harbour Island in Gordon's Bay and the Sea Point promenade.

With such studies carrying obvious concerns for property owners, it appears the insurance industry has already woken up to the threat.

Santam's Reinsurance Head JAS Visser said Santam recognised climate change as "one of the biggest challenges ever faced by the insurance industry, if not the biggest".

He said Santam was in the process of formulating scientific underwriting parameters that would enable Santam to price a risk in terms of climate change exposure.

Visser said the impact would lead to pricing models needing to be aligned with risk profiles and scrutiny as to whether certain pockets of risks were insurable.

In terms of the average home owner, Visser said in the short or long term the impact of climate change would be an increase in awareness of the consequences of climate change combined with optimised risk management.

He said premium increases, cover deletions and excess adjustments were "reactive elements of last resort" with very little long-term value. Risk management and adaption formed the basis of Santam's strategy.

Roy O' Connor, a member of the executive management at Munich Reinsurance Company of Africa Limited, said there was "no doubt" that there was a correlation between increased global temperatures and an increase in natural disasters.

"You can draw a clear correlation between an increase in temperatures and an increase in natural disasters. As a result of that you can draw a correlation with the costs, which are escalating."

But O' Connor said the issue of climate change was "insidious" in the sense that there would not be a sudden increase in claims, nor would the insurance industry suddenly double premiums, although people in high risk areas may eventually have to pay more.

"You are talking 50-100 years from now so its not like you are going to wake up and there will be water lapping at your front door."

He said people would have to realise that they would have to take responsibility for their property, build differently and possibly more expensively. – By Patrick Burnett

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