The reality of international insurers withdrawing coverage or exiting specific regions is not just speculative fiction—it’s happening now.

In Louisiana, insurers have departed due to heightened storm and flood risks, while in California, wildfires have prompted similar actions. Even State Farm, a major insurer, is suspending new sales and opting not to renew some of its highest-risk policies.

News stories from the US highlight policyholders facing premium increases of 2x, 3x, or even 4x in an attempt to retain coverage. A recent survey by Louisiana State University revealed that 17% of homeowners in the state lost coverage in 2022 alone.

In the UK, discussions on nearly uninsurable flood risks date back to the early 2000s.

Could we see a scenario where all insurers exit a market? Is it impossible that legislators would insist on providing cover in all areas as a response? Would it be unreasonable to additional restrict the maximum loading, or the maximum difference between risk rates to protect consumers?

The Consumer Federation of America estimates that over 7% of all homeowners in the US are uninsured, with lower-income homeowners twice as likely to be affected. Regulators are likely to intervene further if the burden falls disproportionately on vulnerable groups. While not all of this is related to storm and fire risks which are linked to climate change, the trend is likely to worsen.

In South Africa, current thinking suggests climate change will mostly result in hotter and drier conditions (with its own implications including for agriculture, water supply, tourism and disease). However, we have already experienced (and are forecast to continue to see) more extreme weather, greater intense rainfall, and shifts of cyclones southward, changing the frequency and severity of storm damage.

We have already experienced withdrawal of cover, albeit Eskom grid failure related. This demonstrates the principle that insurers cannot insure widescale systemic risks, not least of all without reinsurance.

Let’s be clear – South African insurers are not currently facing the same urgency or scale related to increasing natural catastrophes as their counterparties in the US. Any withdrawal from markets would more likely be lines of business (e.g. agriculture) or risk factors (thatch rooves) or micro areas (for fire or flood or storm surge risk).

To mitigate risk, insurers should focus on:

• developing their emerging risk assessment,
• data gathering and analysis to spot emerging claim hot spots,
• effective relationships with regulators and policy makers, and
• processes and business culture around regular updates to dynamic underwriting guidelines.

The more adventurous could explore:

• tailored products to leverage greater demand for insurance,
• parametric insurance to enable wide-area, low cost coverage of agriculture risks, and
• capital market alternatives to reinsurance to offload risk.

More on these opportunities in a future post.