With the climate crisis continuing to escalate, extreme weather events are becoming more and more common. 

In South Africa, in particular, climate risk continues to be a key focus for insurance brokers, with the impact of droughts, floods and earthquakes growing over the last 10 years. The April 2022 KwaZulu-Natal floods, for example, was one of the costliest natural disasters on record in South Africa, with $3.6 billion (67 billion ZAR) in economic losses and $1.8 billion (34 billion ZAR) in insured losses. Overall, Africa loses up to 15% of its gross domestic product per capita every year due to the impact of climate change.

Furthermore, the recent Santam Insurance Barometer Report, which surveyed over 900 consumers, businesses and brokers across South Africa, revealed that 12% of consumers in South Africa had experienced financial loss due to extreme weather events over 2021 and 2022. Moreover, 47% of South African commercial and corporate entities regarded climate change as a top risk in 2023. It is now, therefore, more important than ever for South African farmers and businesses to find measures to mitigate and prevent the severe impact of climate change. 

Using Generative AI

Over the last few years, we have seen an increase in the use of Generative AI (GenAI)to help increase the resilience of businesses and economies as they continue to fight against climate change. 

Defined as a set of algorithms which can create new, realistic content, such as images, audio and text, from training data, GenAI is expected to have a global market value of $60 billion by 2025. Over the last three years, GenAI start-ups across the world have received $20 billion in funding, five times more than the investment they received over the previous three years. 

The rise of GenAI is set to benefit communities across Africa. For example, the UN has recently set up an AI-driven project, to support vulnerable communities in Burundi, Chad and Sudan by using GenAI to look into past environmental patterns around displacement hotspots and produce predictions to help inform measures to limit the impact of any future extreme weather events. Furthermore, in Kenya, the MyAnga app helps pastoralists prepare for drought with satellite data sent to their phones, meaning they can better manage their cattle and livestock, and save time looking for green spaces. 

Brokers can leverage GenAI

Insurance and reinsurance brokers in particular can leverage GenAI to enhance the capabilities of African governments and economies in addressing climate related challenges. GenAI’s strength lies in the fact it can rapidly identify patterns and trends. For example, machine learning models can process satellite imagery, climate models and historical data to project the probability and severity of specific events within different regions in South Africa. This, therefore, allows insurance products to be tailored to the specific needs of agricultural communities, ensuring that they manage and recover from climate-related losses. 

For instance, parametric insurance is one of the insurance products that has seen rapid growth over the last few years. The parametric approach uses GenAI to automatically trigger payouts based on predefined climate-related parameters. If there has, therefore, been an extreme weather event, and the parameter is met, the payout can be with the customer almost instantly, whether that be a farmer losing his crops as a result of drought or a business facing damages from flooding, ensuring that the consumers can mitigate the impact of the event as quickly as possible. 

New risk-mitigation programmes

In the coming years, the South African insurance sector must look to collaborate with agricultural experts and farmers to use GenAI to improve and create new risk-mitigation programmes. For example, by analysing soil conditions, crop resilience and climate data, AI models can give insights into methods for sustainable farming that minimise the impact of climate change on agricultural productivity. 

Programmes may include giving insurance coverage for climate-smart agricultural practices, such as water-efficient irrigation methods or drought-resistant crops. By encouraging and incentivising climate resilient agriculture, the insurance industry can protect and enhance the overall resilience of the South African agricultural sector as we continue to combat climate change.

You can read the original article on the FA News website