Global insurers say Australia is running out of time to reduce its vulnerability to the climate crisis and faces higher premiums for households and businesses.
“They said, ‘you’ve got five years basically’,” said the federal assistant treasurer, Stephen Jones, who led a delegation last month to insurance centres in London and Munich.
“They like what we’re saying but they want to see that backed up by action.
“Insurance affordability is a key economic issue,” Jones said. “It’s on the boil now but I think it’ll be a significant issue over the next couple of years.”
Insurance costs have jumped in the past year, becoming one of the largest contributors to higher inflation. CBA’s latest spending survey found consumers spent 12.9% more on insurance than a year ago, the biggest increase among its 12 categories.
“We are in a global race for capital,” said the chief executive of the Insurance Council of Australia, Andrew Hall, who accompanied Jones. Australia must “tell a better risk management story” by coordinating efforts at all levels of government to improve land-use planning and building codes, or insurance costs would rise further.
About a third of premium increases have come from a surge in reinsurance rates, which have risen by about a fifth in the past year to two-decade highs. Eastern Australia’s floods last year alone caused insured losses of $6.8bn, making it the county’s largest natural catastrophe claims event, SwissRe said.
The main drivers of larger insurance losses have been economic growth, accumulation of assets in exposed areas and rising populations in regions susceptible to natural perils, the reinsurance giant said in report earlier this year. “We expect that these and the evolution of a range of present-day risk factors like climate change effects and, of late, inflation, will continue to drive losses higher.”
Jones said his trip had been prompted partly because “there was some concern that [reinsurers] were withdrawing because of the profile of our risk”.
Those companies have been watching Australia’s actions closely. Australia got “marked up” when it talked about acting on the climate crisis or mitigating exposure to evolving perils but “when we approve a new development in a floodplain, it just undoes all of that, and they go ‘you guys just don’t get it’,” Jones said.
Artificial intelligence and other improvements in data gathering would spur other issues.
“There is an existential challenge for insurance as a service as the accuracy of data and risk prediction gets better and better,” Jones said.
“We run the risk of undermining the whole insurance principle around spreading customer risk across an entire community. If it all gets personalised and individualised, it means the risk isn’t spread any more.”
Global heating is expected to shift tropical cyclones poleward, increasing the risk for regions such as south-east Queensland.
Hall said the Gold and Sunshine coasts have had enormous population growth over 40 years now and have “very exposed communities” to wind damage, storm surge and flooding.
Investments in projects that reduce damage could make a big difference to recovery bills and therefore premiums, he said.
A $28m levee around flood-hit Roma, for instance, compared with $20m spent on helicopters alone to supply the Queensland town during floods prior to 2011. Premiums had since dropped by about a third since the flood defence was built.
The Committee for Sydney, meanwhile, on Wednesday released a major new report - Defending Sydney – in a bid to incorporate lessons from recent floods.
“Sydney’s at a crossroads,” said the director of the committee’s resilience program, Sam Kernaghan, noting the city’s population was expected to swell by another million people over the next decade.
“We’ll be judged on whether more or less people are at risk of natural disasters,” Kernaghan said.
“We know the climate is warming and we’re expecting more frequent and intense rainstorms,” along with other threats such as heatwaves and bushfires.
Costs from natural disasters were already around $38bn a year, or 2% of GDP, a bill expected to roughly double in four decades’ time, Kernaghan said, citing Australian Business Roundtable figures.
