A 1-in-100-year event estimated from historic experience may no longer have the same frequency under changed climate conditions. That single sentence, taken seriously, breaks most of the climate work being done in insurance today — and points at the actuarial discipline that is going to replace it.

By Meyr Kruger, FASSA, Actuary

Climate risk is no longer only a sustainability topic. It is an actuarial modelling problem that affects pricing, reserving, capital, underwriting, reinsurance, asset-liability management, product design and disclosure. For South African insurers the topic is especially practical: floods, drought, wildfires, heatwaves, infrastructure fragility and a changing disease burden affect both short-term and long-term business. The actuarial challenge is to translate complex climate information into assumptions that can survive a pricing committee, a reserving review and a board meeting.

Why the climate problem is structurally different

Actuaries normally rely on historical data. Climate risk breaks that habit because the future may not resemble the past. Exposure is also changing: urbanisation, informal settlement growth, infrastructure strain, supply-chain vulnerability and land-use changes alter the financial impact of climate events even before frequency or severity shifts. The IAIS 2025 Application Paper acknowledges this explicitly — climate risk affects insurers through underwriting, investment, operational and strategic channels, not one of them in isolation.

The catastrophe model, layer by layer

Traditional catastrophe models combine hazard, exposure, vulnerability and financial modules. Each layer is being upgraded.

The hazard layer is increasingly climate-conditioned, using forward-looking climate projections rather than relying solely on historic event catalogues. The exposure layer is becoming more granular — geocoded insured assets, building characteristics, infrastructure dependencies, policy terms. The vulnerability layer is being refined to reflect construction quality, maintenance, flood defences, informal structures and supply-chain repair constraints. The financial layer integrates deductibles, limits, reinstatements, exclusions, reinsurance and aggregation. The IAIS / World Bank Group work on natural catastrophe protection gaps connects all of this to a sharper point — increasing damage is widening gaps and placing pressure on economies and government budgets.

The South African Climate Index, and what it is for

A major South African development is the ASSA Climate Index. It is positioned as a tool that helps actuaries, businesses and policymakers understand how extreme weather events are impacting South Africa, with a dedicated data site covering trends, components and use cases.

For insurers, a country-specific index supports portfolio climate diagnostics, heat / rainfall / drought / cold-spell monitoring, pricing and underwriting overlays, reinsurance conversations, ORSA and SAM stress testing, board reporting and public-policy engagement. It does not remove the need for insurer-specific exposure modelling. It gives South African actuaries a stronger local starting point than imported indices.

Climate hits mortality and morbidity too

Climate risk is not only a short-term insurance problem. Heatwaves, air pollution, wildfire smoke, floods and vector-borne disease change morbidity and mortality patterns. The Society of Actuaries’ research examines this from a mortality angle and a companion morbidity angle, noting that traditional health-cost assessments may underestimate the burden of climate change.

For South Africa, local evidence matters. ASSA’s framework for assessing the direct climate impacts on mortality and morbidity is a credible local reference because disease burden, infrastructure and healthcare access make South African outcomes different from those observed in developed markets.

Where it lands in insurer workflows

In pricing, climate variables inform catastrophe loadings, risk selection, underwriting zones, peril-specific rates and product redesign. In reserving, climate affects claims inflation, demand surge, settlement delays, claims handling costs and latent health impacts. In reinsurance, climate analytics support attachment points, reinstatement assumptions, aggregate covers, catastrophe bonds and capital allocation. In capital and solvency, scenarios assess extreme-event accumulation, liquidity strain, counterparty exposure and management actions. In underwriting, geospatial climate metrics support risk selection, mitigation advice and customer engagement. In reporting, the same analytics produce board packs, ORSA documentation and disclosures that connect narrative risk statements to quantitative evidence.

Where AI tools accelerate any of this work, the controls on our How we use AI page apply.

The governance challenge, named honestly

Climate models are complex and uncertain. Good governance does not pretend otherwise. It documents assumptions, data sources, model limitations, scenario choices and management judgement — and it makes clear to the board whether a climate scenario is a prediction, a stress, a regulatory scenario or an exploratory narrative. Those four things require different responses. Conflating them is the most common governance failure on climate work today.

A South African opportunity

The actuarial question for South African insurers is no longer whether climate matters. It is how to translate climate science into controlled assumptions, quantitative scenarios and decisions a board can act on. Locally relevant data, locally calibrated assumptions, locally meaningful scenarios. This is exactly the kind of multidisciplinary problem where actuarial science is most valuable — and exactly the kind that does not survive being treated as a once-off side project.

If you want to embed climate analytics into your actuarial control cycle rather than running a parallel side model, our Finance Modernisation practice does this end-to-end. See also our piece on how actuaries are leading climate-risk modernisation.

Sources