South Africa to Introduce Parametric Flood Insurance for Large Cities
Cape Town — South Africa is assessing the feasibility of introducing parametric flood insurance for some of its largest cities, following a series of devastating climate-related disasters that have strained public finances and exposed the country’s vulnerability to extreme weather events.
The National Treasury, in collaboration with the World Bank, has initiated a study to determine whether cities such as Cape Town, Durban, and Gqeberha should adopt parametric insurance—an innovative risk-transfer mechanism that provides rapid payouts based on predefined triggers like specific rainfall thresholds, rather than compensating for actual losses.
The Treasury highlighted the growing financial burden of disasters, noting that the cost of climate-related events has escalated in recent years. “Disasters are often financed through reprioritization of money from essential services such as education, health and safety,” the document stated.
Parametric insurance offers a faster and more transparent approach to disaster recovery. Unlike traditional indemnity-based models that require time-consuming damage assessments, parametric insurance ensures immediate liquidity when certain measurable conditions are met, helping municipalities respond more effectively and restore services without long delays.
The move comes after a series of catastrophic events across the country. Cape Town recorded unprecedented rainfall in July last year, damaging tens of thousands of homes. In 2022, torrential rains in Durban claimed at least 459 lives, while floods in Gqeberha also caused significant damage.
The introduction of parametric cover would require changes to existing legislation. As part of the broader disaster risk mitigation strategy, the World Bank has appointed Axa Climate—an arm of French insurance giant AXA SA—to lead the feasibility study. – News Agency