Australians are on the frontline of climate change impacts. We are experiencing more severe bushfires, hotter and longer heatwaves, rising sea levels that are exacerbating hazards along our coastlines, cyclones that are projected to intensify and possibly track further southwards and an increase in rainfall intensity and associated flooding as the climate warms.
Impacts on the availability and affordability of insurance
These events are becoming increasingly costly. Since the 2019–20 Black Summer bushfires, insurers have paid out more than $16.8 billion in natural disaster claims from 13 declared catastrophes and 5 significant events.
In 2022 alone, there were more than 302,000 disaster related claims lodged from four declared insurance events across the country, costing $7.28 billion in insured losses. Six billion dollars of these losses were from the Northern NSW and south-east Queensland floods in early 2022 alone. This was the costliest insured event in Australian history and the second costliest in the world last year.
These worsening climate impacts are driving challenges with the affordability of insurance in some high-risk regions in Australia and some regions may become increasingly difficult to insure as extreme weather risks grow.
Action is required
For insurers to continue to provide insurance coverage at affordable pricing, action is required to strengthen the resilience of our homes, businesses, and communities, shift our approach to what we build and where we build it and see Australia’s economy transition to net zero.
What action is the Insurance Council of Australia taking?
With expertise in risk management developed over hundreds of years of operation, general insurers play a critical role in communicating, managing, and responding to the extreme weather events that many insurance customers face today, as well as how those events may evolve under a changing climate.
As the representative body for general insurers, we are working alongside the community, governments and industry to help ensure insurance remains affordable and accessible by advocating for:
- The general insurance industry to reduce emissions this decade and achieve net zero no later than 2050.
- Greater government investment in resilience and mitigation measures to reduce risk and protect communities, like levees and floodways.
- Reforming planning laws to stop homes being built in high-risk locations.
- Improving building codes and standards to ensure new homes are built to withstand the extreme weather events of today and the future.
- Improving the resilience of existing homes such as retrofitting programs.
- Undertaking home buy-backs where there is no viable way to protect against the risk.
- Standardised disaster clean-up arrangements that support communities to recover, build back better and thrive in the wake of extreme weather events.
- Strengthening the ICA’s data capability and government data priorities to build a national picture of climate risk.
To achieve this the ICA has invested in:
- Industry leadership. Establishing a Climate Change & Resilience Committee, Net Zero Working Group and Built Environment Working Group to bring together our members and drive the development of research, policy and sharing of best practice.
- Landmark reports. Working with some of Australia’s leading experts and research institutes to develop reports that investigate growing climate risks, policy gaps and solutions. Including reports on: Actions of the sea; Cyclones and Flooding.
- Cross sector partnerships. The ICA has also built partnerships to help tackle climate risk and strengthen our built environment, along with shifting our approach to what we build and where we build it. This includes partnerships with the Resilient Building Council, James Cook University Cyclone Testing Station, Minderoo Fire and Flood Mission, Queensland Fire and Emergency Services and collaboration with local government alliances such as the Canberra Region Joint Organisation (CRJO) and the Southeast Councils Climate Change Alliance (SECCCA).
- The Insurance Council is a foundation member of the United Nations Principles for Sustainable Insurance and recognises its important work in supporting global understanding of the contribution insurers can make to manage the physical, transition and liability risks relating to climate change.
Action on nature
The ICA’s nature report, ‘Valuing Nature for a Resilient Future, was released in September 2023 and charts a path for how insurers can play a critical role in building Australia’s resilience, by supporting nature-based solutions and unlocking natural capital.
Insurance in an era of nature loss
Extreme weather events and biodiversity loss are among the most severe nature-related risks identified for the next decade. Failure to manage these risks comes with considerable costs to local and global economies, with the economic value of nature estimated at US$160-180 trillion per year.
With insurers on the frontline of worsening flooding, fires and cyclones, insurers can help manage nature-related risks, from designing new types of insurance to protect coral reefs, to underwriting the development of nature-based coastal defences that reduce erosion.
These investments can better protect homes and communities from extreme weather, whilst driving better outcomes for our natural environment.
Scaling up investments in nature-positive businesses and projects, such as wetland restoration which can reduce the impact of flooding or reforestation which can reduce the risk of erosion, helps the industry to play its part in driving capital towards building a nature-positive and resilient Australia.
What action is the Insurance Council of Australia taking?
The full framework of the Taskforce on Nature-related Financial Disclosures (TNFD) was released in September 2023 and will require organisations to voluntarily disclose their nature-related risks, impacts, dependencies, and opportunities.
The ICA and its members have engaged with the TNFD Taskforce on the design of the framework and are preparing for the role of the insurance industry in enabling a nature-positive future.
The ICA’s report, “Valuing Nature for a Resilient Future”, can assist the insurance sector prepare for the TNFD framework, exploring the links between insurance and nature and outlining some practical steps insurers can take to start integrating TNFD reporting into their own reporting and business strategies.