Three key Nat CAT protection gaps persist in South Africa, which are insufficient infrastructure coverage, underinsurance of covered assets, and disputed claims, according to a joint paper by the International Bank for Reconstruction and Development / The World Bank and the International Association of Insurance Supervisors (IAIS).
In a report titled “G20 Sustainable Finance Working Group input paper: Identify and address insurance protection gaps — July 2025”, the international institutions say that South Africa faces a significant Nat CAT protection gap, with 71% of losses over the past decade uninsured, despite a well-developed insurance sector.
Municipalities, which own local assets and manage disaster response, are particularly underinsured due to constrained budgets, limited risk management capacity, and poor understanding of risk transfer options.
Constrained budgets combined with limited risk management capacity and poor understanding of risk transfer options lead to underinsurance, self-insurance without reserves, or insuring at book rather than replacement value. Inadequate asset registers, aging infrastructure, and poor maintenance further hinder insurability. Policy conditions are often misunderstood, complicating claims.
In addition, few insurers serve municipalities, with one dominant provider covering over half the market. Weak governance and data gaps – asset values, asset location, and historical losses – make municipal assets difficult to price and reinsure. Limited demand has stifled innovation, and while not prohibited, parametric insurance remains outside formal legislative frameworks.
Insurance
The report said, “Insurance alone cannot address systemic municipal challenges but can enhance resilience and transfer of risk. South Africa’s well-developed insurance industry is well placed to strengthen municipal coverage.
The following options are being explored by the national and municipal governments:
• Partnerships between insurers and municipalities to improve risk management and data, reducing disaster risk and enhancing coverage affordability
• Formalising self-insurance or establishing captives with a reinsurance layer for larger claims, as piloted by some of the metros, to lower costs and expedite claims
• Developing parametric insurance for urban risks, integrated into legislation, to enable faster payouts for severe events (parametric insurance pays based on predefined triggers and thresholds)
• Creating public-private partnerships to address large infrastructure or uninsurable risks.