Secondary perils: escalating risks for insurers and businesses
Recent severe weather across South Africa has highlighted the growing impact of secondary perils. Flooding, storms and snow events in mid-2024 caused extensive damage to homes, infrastructure and agricultural operations, underscoring how frequently occurring hazards can generate substantial cumulative losses.
Why secondary perils matter
Secondary perils include events such as hail, localised flooding, drought and wildfires. They occur more often than large catastrophes and are increasingly recognised as major contributors to overall insured losses. Rising temperatures and shifting weather patterns are amplifying their frequency and severity. Traditional catastrophe models, generally calibrated to long-term historical data, are becoming less reliable for forward-looking risk assessment. This is driving demand for new modelling tools that better capture the effects of climate volatility.
Commercial and insurance pressures
The strain created by repeated weather-related losses is visible across the insurance market:
- Some insurers are excluding high-risk areas or specific hazards where losses are viewed as structurally uninsurable.
- Premiums and deductibles are rising as reinsurers reduce capacity and increase pricing, which affects both policyholders and primary insurers’ ability to offer cover.
- Businesses in climate-sensitive sectors, including agriculture, infrastructure and renewable energy, face heightened operational vulnerability as systems struggle to withstand more frequent disturbances.
- Government initiatives, including the Climate Change Response Fund referenced in the 2024 State of the Nation Address, reflect concern that some regions may face long-term insurability challenges if extreme weather continues to intensify.
Examples from recent years
Events such as the eThekwini floods resulted in billions of rands in property, infrastructure and business interruption losses. Claims spanned homeowners, motor, commercial property, liability and marine policies. Wildfires and hailstorms have also produced substantial losses, including the major 2021 Western Cape wildfire that heavily damaged university facilities. Repeated hail events are raising risk levels for solar and wind installations, affecting insurers’ appetite and pricing in the renewable energy sector.
Globally, secondary perils now contribute significantly to economic losses, with annual damages from floods, tropical cyclones, winter storms and severe thunderstorms estimated at around USD 200 billion. This reinforces the challenge for markets with high exposure and limited resilience.
Implications for risk management
The increasing prominence of secondary perils requires changes in how insurers and businesses approach risk:
- Underwriting models need refinement to integrate climate-sensitive data and more accurate geographic risk scoring.
- Businesses may consider revisiting their physical risk strategies, supply chain resilience and site-specific adaptation measures.
- Property values and long-term operating costs may be affected in high-exposure regions, influencing investment decisions and financing conditions.
- Some insurers are already incorporating geographic information systems and similar tools to assess risk more precisely and ensure pricing aligns with emerging loss patterns.
Conclusion
Secondary perils are no longer peripheral considerations. They have become central to the risk environment facing insurers, policymakers and businesses. As weather-driven losses grow more frequent and severe, the insurance market, asset owners and operational leaders may benefit from proactive modelling, improved resilience planning and early alignment with evolving climate-risk expectations.
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