Insurance claims from floods that hit Kenya between March and June rose by 62 percent to at least Sh5 billion, indicating the impact on insurers of the increasing severity and frequency of climate change-related risks.
The rise in flood claims means insurers will have to pay more attention to the growing range of risks that are testing traditional underwriting models, said Godfrey Kiptum, chief executive of the General Insurance Corporation.
“One of the most pressing challenges is climate change,” said Mr. Kiptum, who was addressed on his behalf by Kalay Muzi, Director of Supervision at IRA. “Extreme weather events are increasing in frequency and intensity, directly impacting the insurance sector’s ability to assess and cover risks. For us in Kenya, we recently experienced floods and those floods cost the industry over Sh5 billion in claims.”
The experience of Kenyan insurers reflects the global trend where more frequent and severe weather events such as floods, droughts and fires have led to higher claims, one of their biggest concerns.
The rise in claims confirms an assertion by Kenya Insurance Association CEO Tom Gichuhi in July that many insurers were still processing flood-related claims.
The Sh5 billion bill is putting pressure on insurance companies.
By the end of April, they had only been able to pay Sh147.3 million, or less than five percent of the Sh3.14 billion claims they had received at the time for damaged farms, homes, industries and office buildings.
The interaction between drought and floods means “we have no idea what climate change will do next,” Mr. Jizhou He said, suggesting that insurers need to rethink their pricing models.
“Insurers may have to regroup and ask themselves how they will respond in the future. Do they want to hold on and provide coverage as if nothing had happened, or is it time to rethink the pricing model and choose rates that reflect the pace and magnitude of losses?” Mr. Gichuhi asked.
Widespread flooding has left massive numbers of people dead, injured and devastated in Kenya and neighbouring countries such as Tanzania, Uganda and Burundi.
In Kenya, more than 300 people had been killed and more than 400,000 displaced by mid-June, according to the Ministry of Interior and the National Disaster Operations Centre of the National Administration. Thousands of homes were destroyed, key infrastructure including roads and bridges damaged, and crops and livestock washed away.
Mr Kiptum said evolving risks such as natural disasters, cyber threats and pandemics are a reminder to insurers of the need to come up with new models for assessing risk as regulators embrace adaptive and proactive supervision.
Insurance companies are expecting a fresh spike in claims arising from the vandalism and looting that accompanied street protests that rocked Kenya between June and July over taxes proposed in the 2024 Finance Bill.
Deaths, injuries, looting and property destruction during anti-government protests have led to increased claims from life, health and property insurance companies.
Kenyan insurers said in July that political and climate change risks, which have traditionally had a relatively small impact on the industry, looked set to drive claims disproportionately higher this year.
For a long time, most Kenyan insurers have been keeping a close eye on political risks in places like West Africa and climate-related risks like wildfires and floods that have hit the United States and many European countries.
But there are warning signs everywhere. Rising water levels in Kenyan lakes, events like Cyclone Hidaya that hit East Africa in May and civil unrest in several neighbouring countries have given local insurers something new to think about.
Climate change risks will pose a long-term challenge for insurers, and will require concerted efforts to deal with events such as floods and droughts, Mr. Jishuhi told this publication in June.
For example, the floods in Kenya came on the heels of the worst drought on record in more than 40 years in many parts of the Horn of Africa region – from late 2020 to early 2023.
According to the International Monetary Fund, the Kenyan economy is highly vulnerable to climate-related risks and the impacts of climate change. This is largely due to the climate-sensitive nature of its economy, with agriculture, water, energy, tourism and wildlife sectors playing a significant role.
Agriculture and tourism – the two main climate-sensitive sectors – account for more than 50% of Kenya’s GDP. The agriculture sector employs about 80% of the rural workforce.
Kenya faces a very high risk of a humanitarian crisis, ranking 17th out of 191 countries in the 2023 InfoRisk Index – an open-source, EU-backed global assessment of risks related to humanitarian crises and disasters.