Kenya’s insurers are making changes to their pricing models amid increasing climate-related risks that have flooded them with claims running into billions of shillings.
Insurers say extreme events such as floods are now occurring outside historical patterns, making old actuarial models based on past data insufficient and unreliable.
The changes come after several insurers, including Britam Holdings, CIC Insurance Group and Sanlam Kenya and Kenya Reinsurance Corporation (Kenya Re), paid out millions of shillings in climate-related claims and estimates show the trend is likely to continue.
The move reflects a global trend, with developed markets such as the United States also adjusting risk models to raise premiums for increasingly frequent and severe events like floods, hurricanes, and wildfires.
For instance, CIC paid out Sh700 million due to floods that hit the country last year while payouts from Britam over the same event topped Sh400 million.
Sanlam has disclosed that it paid out Sh27.4 million in 2024 and closed the year with outstanding flood claims worth Sh10.88 million. Reinsurer Kenya Re paid out over Sh108 million claims related to natural catastrophes like floods, according to information in its annual report.
Now the underwriters are reacting by developing models that incorporate technology such as climate science, satellite imagery, and artificial intelligence (AI) to simulate future climate scenarios and assess potential impacts more accurately.
Kenya Re is currently looking for a consultant to provide catastrophe modelling services for general reinsurance business with focus on floods and earthquakes.
The reinsurer, which provides reinsurance services to more than 482 companies spread out in over 84 countries, says the catastrophe modelling will help it determine the exposure to floods and earthquakes.
“The scope of catastrophe modelling is to estimate Kenya Re’s probable maximum exposure to catastrophic events for each return period and provide a report on the same,” says Kenya Re in a tender document.
The modelling –including risk simulations, exposure modelling, and loss estimation– will guide Kenya Re's pricing, underwriting, and reinsurance decisions.
The move will help Kenya Re enhance its disaster risk assessment and resilience strategies in light of increasing climate-related risks and mirrors the likes of Britam which cites climate-related risks as part of the reasons it has to keep adjusting its business model to reflect a “rapidly evolving” landscape.
“To thrive in this environment, we are reimagining our business model, one that is agile, insight-led, and deeply rooted in the diverse needs of African consumers,” says Britam in the latest annual report.
Sanlam on the other hand says it has to continuously evolve its climate risk models if the business is to view the risks as potential opportunities.
For Zep-Re, which serves the Common Market for Eastern and Southern Africa markets including Kenya, climate risk poses a “serious structural threat” and it has had to tap into scientific-backed models to price risks.
“Natural catastrophes pose a significant accumulation risk within Zep-Re’s portfolio. To effectively manage this risk, Zep-Re utilises scientific simulation models that quantify the probabilities of occurrence and potential severity of losses,” says Zep-Re in the latest annual report.
“The outcomes of these models are integral to informing the company’s retrocession strategy. We aim to secure sufficient retrocession coverage to safeguard against events with a return period of 1-in-250 years, ensuring that the company is adequately protected from extreme loss scenarios.”
Other insurers are now deepening their focus on parametric or index-based models, along with AI, satellite analytics, and blockchain to sustainably underwrite climate-related risks.
