Some risks are simply too large, too correlated or too uncertain for private insurance to carry alone. Pretending otherwise has produced two decades of widening protection gaps in South Africa. Pooling is not a silver bullet — it is the structurally honest response to the kinds of risk that ordinary insurance cannot price into affordability.

By Johann van Rooyen, FASSA, CEO

Natural catastrophe, terrorism, pandemic, systemic cyber, agricultural drought, municipal infrastructure risk and certain climate-related perils share the same uncomfortable property: when losses arrive, they arrive together. Pooling arrangements combine risks, capital, expertise and governance across participants, usually with public-sector involvement. For South Africa the topic is practical, not theoretical — climate risk, infrastructure pressure, affordability constraints and protection gaps leave households, businesses and municipalities exposed in ways the private market alone cannot close.

Why private markets sometimes fail

Insurance works best when risks are numerous, independent, measurable and affordable. Several South African risks violate these conditions. Natural catastrophes affect many policyholders at once. Cyber events spread through common vendors or software. Pandemic losses are economy-wide. Drought hits agriculture and public finances at the same time. Municipal infrastructure failure correlates with climate events and fiscal constraints.

When losses are highly correlated, insurers need substantial capital and reinsurance. Premiums climb to unaffordable levels, coverage narrows, exclusions expand and protection gaps widen. That is the failure pattern the South African market is now living with.

The local case for pooling, named

Botha and Ahmed’s 2025 ASSA paper, Insuring the Uninsurable, addresses this directly. The authors argue that private markets sometimes fail to provide necessary capacity for certain risks and that pooling arrangements offer a collaborative, scalable and internationally proven solution. The paper matters because it frames pooling not as a theoretical idea but as a South African market-design question — with named barriers, opportunities and the role insurance-market participants can play.

What a well-designed pool can do

  • aggregate risk across participants;
  • diversify geographically or by peril;
  • create central technical expertise;
  • purchase reinsurance more efficiently;
  • support standardised policy wording;
  • improve data collection;
  • enable public-private risk sharing;
  • improve affordability through subsidies or layered funding;
  • provide faster post-event liquidity;
  • support risk-reduction incentives.

Pooling does not make risk disappear. It changes how risk is shared, funded and governed.

International and African precedent

African Risk Capacity is the major regional example — a specialised agency of the African Union helping governments plan, prepare and respond to extreme weather events and disasters. The World Bank’s REPAIR programme, implemented by African Risk Capacity Limited, strengthens regional financial protection against climate and disaster shocks in Eastern and Southern Africa. Internationally, natural catastrophe pools, terrorism pools and agricultural pools show that public-private collaboration can expand coverage where ordinary private markets are constrained. The exact design differs by country, peril and policy objective — and that is the right way around. There is no off-the-shelf pool.

The numbers that should focus attention

The South African Reserve Bank’s 2025 G20 work on natural catastrophe insurance notes that the global insurance protection gap was estimated at 62 percent in 2023, with gaps above 90 percent in some emerging-market and developing economies. The IAIS / World Bank Group analysis reinforces the trend — increasing damage is widening protection gaps and placing strain on economies and government budgets.

When insurance is unavailable or unaffordable, losses shift to households, municipalities, businesses, banks, donors or the fiscus. Pooling is part of a broader disaster-risk financing strategy, not a substitute for one.

Seven design questions a South African pool has to answer

What risk is pooled? Natural catastrophe, flood, drought, municipal infrastructure, cyber and agriculture require materially different structures.

Who participates? Private insurers, reinsurers, government, municipalities, development finance institutions, businesses and communities may all have roles.

Voluntary or compulsory? Voluntary participation suffers adverse selection. Compulsory participation raises legal, political and market-design questions that cannot be dodged.

How is pricing set? Balance risk-based pricing, affordability, cross-subsidy and incentives for risk reduction.

How is capital provided? Member contributions, reinsurance, catastrophe bonds, contingent credit, government backstop, donor funding — usually in a layered structure.

How are claims paid? Parametric triggers give speed and basis risk. Indemnity triggers align to loss and require assessment. The choice is the design.

How is governance structured? Conflicts of interest, data, procurement, reinsurance, reserving, capital and public accountability — all in one operating model.

What the actuarial profession contributes

Pooling is not only a policy question. It is a quantitative design problem. The actuarial contribution covers exposure and hazard modelling; pricing and affordability analysis; capital modelling; reserving and liquidity; parametric trigger design; reinsurance structuring; stress testing; governance and reporting; protection-gap measurement; and monitoring of risk-reduction incentives. Where AI tools are used in any of this analysis, the controls on our How we use AI page apply.

The South African opportunity

South Africa has strong actuarial expertise, deep insurance-market knowledge and a growing climate-risk data base. That creates an opportunity to design pools that are technically sound, commercially realistic and socially useful. The actuarial role is not advocacy — it is to quantify the risk, test the design, explain the trade-offs and build the governance needed for long-term sustainability. That is the seat actuaries should be taking in this conversation.

If you are scoping a pool, a protection-gap diagnostic or a disaster-risk financing structure, our Risk Management practice and our Finance Modernisation practice cover the analytics and governance together.

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