Abstract
The South African insurance industry is facing increased strain by climate-related risks such as flooding and droughts, which produce widespread losses that are difficult to quantify and slow to indemnify. Further to this, insurance law is grounded on the principle of indemnity, and this will become the essence of this dissertation when considering the role of parametric insurance within our legal sphere. Climate-related risks place a disproportionate burden on vulnerable farmers, who lack the financial resilience and access to insurance that is needed to recover from climate shocks. Parametric insurance, which pays out a fixed amount upon the occurrence of predefined trigger events, promises speed and accessibility in claims settlement. However, it deviates from the traditional indemnity principle under which a policyholder is compensated only for the actual loss incurred. This bypasses individual loss assessment and creates the possibility of overcompensation or under compensation. While the Insurance Act 18 of 2017 and its related regulatory instruments comprehensively regulate indemnity-based products, they remain silent on parametric insurance mechanisms, leaving a regulatory gap where technological innovation exceeds the reach of the traditional insurance doctrine. This dissertation therefore submits that parametric insurance can be reconciled with South Africa’s legal framework, argues that it holds significant potential as a sustainable development tool and draws comparative insights from Kenya’s index-based regime to support the viability of a state-led model for protecting vulnerable farmers.