As South Africa faces a rising tide of climate shocks, collapsing infrastructure, and mounting insurance claims, the National Treasury’s new plan to overhaul disaster risk financing is timely but incomplete.
That’s the warning from leading risk expert Volker Von Widdern of Riskonet Africa, who says the policy focus on financial mechanisms overlooks the root cause of escalating disasters: chronic under-preparation and failure to act on known risks.
He says that, while Treasury’s discussion paper presents a solid technical foundation for enhancing post-disaster funding, it risks putting the cart before the horse by focusing too narrowly on financial mechanisms.
Money is not enough
“The title of the policy framework – Enhancing South Africa’s Approach to Disaster Risk Financing’ – suggests that access to funds alone will solve the problem,” Von Widdern says.
“But as we’ve seen time and again, particularly in local municipalities, disasters are not just about a lack of funding, they’re about a lack of preparation, maintenance and foresight.”
The Treasury paper discusses various challenges that have exacerbated financial distress following disasters, such as the lack of insurance market appetite for these risks and inaccurate asset registers containing outdated and understated values. “Throwing money at the problem” is not appropriate.
Local Authorities are responsible for the custody and care of their assets. Insurance markets cannot be expected to provide cover for assets that are inaccurately described and for which maintenance programmes are deficient.
The result of not addressing the basics of asset management leads to overspending on post-event maintenance and inadequate development of disaster resilient infrastructure.
Von Widdern points to the recent case in KwaZulu-Natal, where Japanese reinsurers are suing the eThekwini Municipality to recover their losses over the Toyota plant flood damage. “That wasn’t just a weather event, it was a compound failure of the existing flood management infrastructure. Canals weren’t cleared, water flow was obstructed, and the resulting damage as avoidable. No amount of insurance can offset poor maintenance and absent risk planning,” he says.
Importance of integration
The Treasury paper calls for better coordination between the Disaster Management Act and the Public Finance Management Act and proposes a centralised disaster fund, pre-arranged risk transfer instruments, and stronger intergovernmental collaboration. But Von Widdern insists the risk community must push for a more integrated view.
“We should urge Treasury to go further and link risk financing to measurable improvements in preparedness,” he says. “We must incentivise municipalities to conduct meaningful risk assessments, invest in infrastructure resilience, and embed risk data into urban planning and budget cycles. Incentives must be combined with accountability for inadequate action because the failure of local authorities to implement consistent and appropriate disaster risk management severely impacts their communities. Holding such Local Authorities legally and financially responsible in such cases will improve governance and accountability.
Only then does financing become effective because it supports a system designed to avoid and mitigate loss, not merely absorb it.”