Mozambique’s cyclones highlight Africa’s crisis of climate insurance
The difficulties of insuring Africa as climate change accelerates continue to mount. Cyclone Kenneth, following hard on the heels of March’s Cyclone Idai, hit Mozambique on Thursday and has flattened villages in the north of the country, leaving an estimated 700,000 people at risk.
“Two cyclones of this magnitude in quick succession is unheard of since modern record-keeping began,” says Niall Smith, senior environmental analyst at Verisk Maplecroft.
What was unheard of, however, may soon become regular. According to a Swiss Re report in 2018, the clear trend is a “‘new normal’ of higher-frequency, more severe localised events, many related to extreme weather, that are causing ever greater damage.”
In 2018, smaller but more frequent natural catastrophes contributed to the fourth-highest ever annual insurance pay-out, Swiss Re says. Half of the losses caused were uninsured, with costs borne by individual victims or national governments.
Africa stands in the front line of this new normal. According to a February report from French reinsurer Scor, the climate risk protection gap in Africa caused by extreme weather conditions is estimated at $1.7trn.
Mozambique’s score of 2.58/10.00 in Verisk Maplecroft’s Natural Hazards Vulnerability Index borders on the “extreme risk” category, placing it as the 11th highest-risk country of 194 globally.
“The cumulative loss and damage the country will feel from these events will lengthen the economy’s recovery time significantly and increase the reliance on overseas development assistance,” Smith says.
The World Bank has estimated that damage from the first Idai cyclone alone will cost Mozambique, Zimbabwe and Malawi more than $2 billion to repair.
Disaster response, not infrastructure
African Risk Capacity, an African Union agency which works to strengthen disaster risk-management systems, has been building tropical cyclone models to derive corresponding risk-financing products.
- It’s “unfortunate” that the Idai cyclone hit development work for these tools that is still in progress, African Risk Capacity said on 26 March.
According to Smith, the priorities of Mozambique’s government will “shift towards immediate disaster response and healthcare provision, rather than the hardening of vital infrastructure including road and rail networks, and power transmission, leaving businesses highly exposed to supply-chain risks in the case of future events.”
Impact on Anadarko
The impact is of particular concern to the energy sector, due to the ongoing negotiations around the sale of US oil and gas exploration and production company Anadarko Petroleum, Smith says.
- Chevron and Occidental Petroleum are locked in a bidding war to buy Anadarko, which is developing Mozambique’s first onshore LNG facility.
- Anadarko has signed LNG agreements with buyers including CNOOC, Tokyo Gas, Centrica and EDF ahead of making a final investment decision, due in the first half of this year.
Smith points out that parts of the Anadarko project fall within Cyclone Kenneth’s storm track. He finds it “alarming” that the project will represent 25% of the company’s total capital expenditure by 2022.
“Anadarko and other LNG operators must factor in climate adaptation measures into the development of these assets, or they face suffering unforeseen losses when future events do occur,” he says.
The winners of this bidding war “must take caution from these recent events, considering the level of commitment that Anadarko has placed in developing a project off the coast of Mozambique,” Smith says. Anadarko said it suspended air transportation at the site as a precaution.
Insuring against the impact of climate change in Africa is only going to get more difficult. The World Bank estimates an adaptation investment cost need of $14bn-$17bn per year over the period 2010-50 for sub-Saharan countries to adapt to an approximately 2°C warmer climate forecast for 2050, with 2°C being an optimistic forecast. French insurer Axa has warned that more than 4°C of warming this century would make the world “uninsurable”.
At present climate change in Africa is outstripping the ability of insurers and policy-makers to find workable solutions.