How Climate Change Reshaped the Reinsurance Landscape in Asia and Africa in 2024
In 2024, the reinsurance market in Asia and Africa faced unprecedented challenges due to the increasing frequency and severity of climate-related disasters. Two significant events—the East African floods and the Southeast Asian heatwave—highlighted the profound impact of climate change on the industry.
East African Floods
Between March and May 2024, East Africa experienced heavy rainfall that led to severe flooding, resulting in hundreds of deaths and affecting over 700,000 people. This region has seen an increase in observed rainfall over the past 15 years, a trend partly attributable to climate change.
The floods caused extensive damage to infrastructure, homes, and agriculture, leading to substantial economic losses. Reinsurers operating in the region faced significant payouts, straining their financial resources and prompting a reassessment of risk models and pricing strategies.
Southeast Asian Heatwave
In April 2024, Southeast Asia endured an intense heatwave, with temperatures soaring to unprecedented levels. The India Meteorological Department warned of heatwave conditions lasting 10 to 20 days in several parts of the country, exacerbating health risks and disrupting daily life.
The extreme heat led to increased energy consumption, strained water resources, and adversely affected agriculture, resulting in reduced crop yields. These factors contributed to economic losses and heightened claims for reinsurers, particularly in health and agriculture sectors.
Impact on the Reinsurance Market
These climate events underscored the escalating risks associated with climate change, compelling reinsurers in Asia and Africa to reassess their exposure and pricing models. The increased frequency of natural disasters has led to higher reinsurance premiums and stricter underwriting standards. For instance, property catastrophe reinsurance rates rose by up to 50% for July 1, 2023, renewals, reflecting the market’s response to heightened risk levels.
The reinsurance industry is also exploring innovative solutions, such as parametric insurance, which provides payouts based on predefined event triggers like hurricane wind speeds or earthquake magnitudes. This approach aims to offer quicker claims resolution and better alignment with actual losses, addressing some challenges posed by traditional indemnity-based insurance.
Conclusion
The events of 2024 have highlighted the urgent need for the reinsurance industry in Asia and Africa to adapt to the realities of climate change. By implementing more robust risk assessment models, adjusting pricing strategies, and embracing innovative insurance solutions, the industry can enhance its resilience against future climate-related disasters. Collaboration with governments and stakeholders is essential to develop comprehensive strategies that mitigate risks and ensure the availability and affordability of insurance coverage in an increasingly volatile climate.
Jennifer Estrougo, Adv.
Deputy CEO & Head of Claims