South Africa’s climate index set to transform insurance risk management
Written by Adrian Ephraim
As climate-related losses increase across Southern Africa, Old Mutual Insure and the Actuarial Society of South Africa (ASSA) have launched the South African Climate Index, a sophisticated tool designed to help insurers and policy makers better understand and prepare for extreme weather events at a regional level.
This effort addresses critical gaps in the way climate data is commonly presented. While global warming is often simplified to a single number: 1.5 degrees or 2 degrees of warming, the reality at the local level is much more complex, according to Cesar Varona, a lead team member involved in developing the index.
“The reality is that climate change can have a variety of impacts at the local level, all the way to cities and sub-regions,” Barona explains. “This index takes all the different climate patterns that we’re observing and maps them onto a fine-grained grid so we can see what extreme patterns these sub-regions have experienced historically.”
Localized insights for business resiliency
The Climate Index sets itself apart from existing climate monitoring organizations by focusing specifically on South Africa, while transforming global data sources into actionable insights for the insurance industry. The platform incorporates data from sources such as the European Space Agency, which it processes to identify extreme weather patterns most relevant to South Africa’s geography.
For a short-term insurance company like Old Mutual, this local approach is essential. The company insures physical risks ranging from hail damage to flooding, and understanding the range of extreme weather events directly impacts underwriting models, pricing strategies, and capital requirements.
“We need to understand the impacts and risks our clients face,” says Varona. “Many insured losses are caused by weather patterns such as hail and flooding. We don’t worry about typical everyday events. We worry about extreme events.”
Old Mutual’s internal modeling has already revealed a strong relationship between various weather patterns and insurance losses. The Climate Index provides a standardized, scientifically-validated framework that makes this important analysis more accessible across the industry.
Beyond insurance: broader applications
Although designed with insurance companies in mind, the potential of this index extends far beyond the insurance sector. Government agencies can overlay climate risk maps with data on vulnerable communities to identify priority areas for infrastructure investment and disaster preparedness.
“Here’s where the climate risks are and what they’re going to look like going forward,” Barona points out. “Combined with where we know there are infrastructure challenges, it means these are the areas to focus on improving infrastructure, as these are the most vulnerable communities and are most at risk.”
The platform currently tracks rainfall, minimum and maximum temperatures, and drought conditions. Future enhancements are planned to incorporate additional perils, including hail, wind, extreme storms and lightning, all important factors for the South African insurance market.
The developers also aim to enable programmatic access to the data, allowing companies to integrate climate information directly into their systems for more seamless modeling capabilities.
Industry collaboration as a competitive advantage
Old Mutual’s decision to sponsor the Climate Index with ASSA reflects a strategic commitment to industry-wide resilience, rather than siled competitive advantage. Similar to the company’s support for Quick Reaction Force, a consortium of insurance companies tackling bushfires in the Western Cape, this partnership recognizes that climate risk management benefits everyone.
“This will benefit not only Old Mutual but the entire industry,” Barona emphasizes. “Making this available means other industries will benefit as well.”
Early industry feedback has been overwhelmingly positive, with colleagues from a variety of companies expressing enthusiasm about the tool’s potential applications. Barona expects the index to foster important research and discussion at industry events and ultimately drive more sophisticated climate risk management practices.
catalyst for innovation
Southern Africa faces particularly severe climate challenges, with warming trends more severe than the global average and potentially dramatically changing weather patterns. Sophisticated modeling tools are even more important in the region’s smaller economies.
“For us, it’s important to understand and model these things at a granular level in order to be aware of what might happen, stay ahead of the curve, and manage risk proactively rather than reactively,” Barona explains.
As the index gains momentum, its success will largely depend on industry adoption and the research it stimulates. By providing a single, easy-to-understand touchpoint for complex climate data, the South African Climate Index has established itself as a cornerstone of climate risk management, not just for insurance but also for infrastructure planning, policy development and community protection across Southern Africa.
