South African Climate Index set to transform insurance risk management
By Adrian Ephraim
AS climate-related losses intensify 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 policymakers better understand and prepare for extreme weather events at a localised level.
The initiative addresses a critical gap in how climate data is typically presented. While global warming is often simplified to a single figure – 1.5 or 2 degrees of warming – the reality at local levels is far more complex, according to Caesar Balona, a key team member behind the index’s development.
“In reality, at the local level, down to cities and even sub-regions, climate change can have varied impacts,” Balona explains. “The index takes all the different climate patterns we observe, maps them on a fine grid, and allows us to see in these sub-regions what extreme patterns have historically been experienced.”
Localised insights for business resilience
The Climate Index distinguishes itself from existing climate monitoring organisations by focusing specifically on South Africa while translating global data sources into actionable insights for the insurance sector. The platform incorporates data from sources like the European Space Agency, but processes it to identify extreme weather patterns most relevant to South African geography.
For short-term insurers like Old Mutual, this localised approach is essential. The company insures physical risks ranging from hail damage to flooding, and understanding the scope of extreme weather events directly impacts underwriting models, pricing strategies, and capital requirements.
“We need to understand the impacts or the risks that our clients face,” says Balona. “A large amount of insured losses arises from weather patterns like hail or flooding. We’re not concerned about typical events that happen day-to-day – we’re concerned about the extremes.”
Old Mutual’s internal modelling has already revealed strong relationships between various weather patterns and insurance losses. The Climate Index now provides a standardised, scientifically validated framework that makes this crucial analysis more accessible across the industry.
Beyond insurance: Broader applications
While designed with insurers in mind, the index’s potential extends far beyond the insurance sector. Government agencies could overlay the climate risk maps with data on vulnerable communities to identify high-priority areas for infrastructure investment and disaster preparedness.
“These are where the climate risks are and how they’ll look going forward,” Balona notes. “Coupled with where we might know there are infrastructure challenges, this would mean these are the areas to focus on to improve infrastructure because they are the most at risk with the most vulnerable communities.”
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 critical factors for the South African insurance market.
Developers also aim to enable programmatic access to the data, allowing companies to integrate climate information directly into their systems for more seamless modelling capabilities.
Industry collaboration as a competitive advantage
Old Mutual’s decision to sponsor the Climate Index alongside ASSA reflects a strategic commitment to industry-wide resilience rather than siloed competitive advantage. Similar to the company’s support for the Quick Reaction Force – a consortium of insurers tackling wildfires in the Western Cape – this collaboration acknowledges that climate risk management benefits everyone.
“It benefits not only Old Mutual but the entire industry,” Balona emphasises. “Making it available means it benefits other industries as well.”
Initial industry feedback has been overwhelmingly positive, with colleagues across various companies expressing enthusiasm about the tool’s potential applications. Balona anticipates the index will catalyse significant research and discussion at industry events, ultimately driving more sophisticated climate risk management practices.
A catalyst for innovation
Southern Africa faces particularly acute climate challenges, with warming trends more severe than global averages and potentially dramatic shifts in weather patterns. For smaller economies in the region, sophisticated modelling tools become even more critical.
“With us, it’s important that we try to understand at a detailed level and model these things to be aware of what may happen, get ahead of the curve, and try to proactively manage the risk rather than reactively manage it,” Balona explains.
As the index gains traction, its success will depend largely on industry adoption and the research it inspires. By providing a single, digestible touchpoint for complex climate data, the South African Climate Index has positioned itself to become a cornerstone of climate risk management – not just for insurance, but for infrastructure planning, policy development, and community protection across Southern Africa.
