Businesses and communities along parts of the east coast of South Africa were devastated by catastrophic flooding. What was once a relatively well-defined risk has become more erratic, if not unprecedented, meaning effective business continuity planning is more vital than ever, writes Allianz Global Corporate & Specialty (AGCS) South Africa CEO Thusang Mahlangu.
Parts of KwaZulu-Natal (KZN) received between 200mm and 400mm of rainfall in 24 hours on April 11 and 12, 2022. All parts of the province were affected by the rainfall. The province has been dealt a triple blow — the Covid-19 pandemic, the July riots, and the floods.
Streams swelled, burst their banks and then the flash flooding started. Cars and houses were washed away. Streets were inundated and covered in mud and, as the rain continued to fall, it triggered massive landslides.
The natural disaster affected more than 100,000 people and almost 500 people died in KZN. Operations at the Port of Durban, one of Africa’s busiest ports, were interrupted, with the risk of major supply chain disruptions across Southern Africa as a result of extensive damage to the Bayhead Road, which links the port to the rest of the country. The route handles 13,000 heavy vehicles per day. There has also been extensive damage to public infrastructure. It’s estimated that it will take around 600 million euros to rebuild the province. The Eastern Cape Heavy also experienced heavy rainfall and flooding where roads, bridges and houses were extensively damaged.
As Allianz, we have contributed EUR50,000 towards the KZN disaster relief through the South African Red Cross Society. The funds will address four areas: food security and livelihoods, shelter, healthcare; water, sanitation, and hygiene to support over 100 households. We are also supporting our affected clients to ensure we can place them in the same position they were in before the floods.
Flood catastrophes result from a complex web of climatic, hydrological, and social factors. Scientists were quick to see the direct impact of climate change on the disasters. After all, for years, they have warned that climate change will result in more flooding. For every degree Celsius of warming, the atmosphere can hold about 7% more moisture1 , which can supercharge rainstorms. Respondents in South Africa ranked climate change number six in the Allianz Risk Barometer’s top 10 business risks for 2022.
The flood risk landscape, previously well defined by historical and government flood maps, and to some extent local knowledge, is being challenged with erratic and unprecedented weather patterns. What we accepted as ‘normal’ is being changed by new realities of climate change, rapid urbanization, and human development. It is creating specific new risks for companies.
Climate change is here
The United Nations’ Intergovernmental Panel on Climate Change (IPCC) issued a stark warning that without immediate and deep emissions reductions across all sectors, limiting global warming to 1.5°C is beyond reach. The IPCC has previously warned that disasters, such as the recent floods, will become even more severe as the water cycle continues to intensify as the planet warms. Each fraction of warming will bring greater rainfall, higher rises in sea levels and more intense droughts and extreme wildfires.
Flood damages can also occur outside mapped river floodplains. The damaged picture of the recent KZN flooding is likely to illustrate this, with companies outside larger hazard zones but close to small rivers or even streams affected by massive flooding. And the losses suffered by the victims of flash flooding are often higher than those incurred along rivers, largely because of the unpredictable nature of flash floods.
But record rainfall and flash floods are only part of the risk picture. Flood depths and rainfall levels get widely reported, but other contributory factors such as the speed of the flood and flood ‘missiles’ – like cars, tree trunks or household appliances – ramp up the potential risk.
Companies need to prepare for such natural events with a flood contingency plan, also known as a business continuity plan, to reduce potential losses. Current events show how important this is.
Business continuity management in focus
Many companies in KZN were shocked to discover that their emergency plans were quickly overwhelmed in the face of the masses of water. Our risk engineers recommend that all companies use early warning systems and draw up a flood contingency plan to reduce potential losses and be adequately prepared for extreme events.
It is not possible to make all sites equally resilient and measures should be weighed up against risk exposure such as geographical location and the risk of natural disasters, along with the importance of the site for value creation and its place in the supply chain.
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In addition to sandbags and other physical barriers, flood mitigation methods could include securing empty containers that might be washed away, the reinforcement of roofs, especially in the corner and edge areas, to dissipate the acting storm forces, and the fixing roof superstructures, such as solar panels.
Companies are often reluctant to make the effort of creating a business continuity plan. However, there are always good examples of clients who can pull this plan out of the bag in the event of a loss and thus have a decisive speed advantage in getting back into operation quickly.
Business continuity planning for crisis events – and floods are just one scenario among several – must be prepared in advance and revised regularly.
Once an event has occurred, business owners need to react quickly to ensure the interruption remains minimal.
First, it is important to shut down electronic supplies and prevent runoff of pollutant-containing liquids so that any heavy metals or oils do not get into the groundwater. It is also important to secure and store important items and preserve machinery and production equipment. Important documents should also be secured.
The second step, and a critical one for the later insurance claim, is to inspect and record the damage with the insurance expert and take initial drying measures in the production halls.
Flooding is always an exceptional situation entailing increased risks during recommissioning. Machinery and equipment – primarily high-value and production-critical equipment – must be cleaned and dried comprehensively. Electrical equipment should be inspected before being switched on and repaired, if necessary, to prevent short circuits and subsequent ignition.
Any debris from the interior and exterior floor inlets, gutters, downspouts and catch basins must also be removed. Ultimately, the safety equipment must be returned to service as quickly as possible, and ignition sources must be eliminated to avoid fire.
Insurance in the age of climate change
One of the questions arising with an increase in extreme weather events is whether companies should increase their insurance or if insurance companies will have to increase their premiums. In general, companies are better insured against natural hazards than private households. Usually, classic property insurance for companies also includes coverage against natural hazards.
As an insurer, we have to expect increased exposure to flooding in the future, especially after heavy rain. In our estimation, this will also have an impact on capacity allocation. Customers who convince us of the suitability of their risk management concepts will have advantages when purchasing insurance cover.
The premium for natural hazards insurance depends on individual risk, coverage, and the customer’s property contribution. Other relevant criteria are the location of the risk, protection concepts, vulnerability of insured property, precautionary measures for business continuity management and maintaining/resuming operations after a loss event.
The recent catastrophe reports on weather extremes around the globe are an overdue wake-up call. Insurers and their corporate clients must prepare themselves for the fact that previous once-in-a-century events may well occur more frequently in the coming decades. Climate change is a reality.
Floods are just one example of weather extremes that businesses must be prepared for – heavy rain, drought and extreme cold can also take their toll. AGCS can help clients evaluate their emergency plans as part of its preventive loss prevention consulting services and recommend improvements where necessary. AGCS also offers a valuable Flood Checklist that provides tips, actions and advice to be undertaken before, during and after a flood.