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. To ensure Australians continue to have access to affordable insurance protection, we’re tackling the climate challenge by enabling and supporting the general insurance industry to transition to net zero.
Insurance Council of Australia
Climate Action
The ICA’s Climate Change roadmap proposes how the insurance industry can achieve net-zero and make substantial emissions reduction this decade.
Climate Action
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The ICA’s Climate Change roadmap, ‘Towards Net Zero and a Resilient Future’, was released in November 2022 and co-authored with Boston Consulting Group. Drawing on best practice globally and locally, the roadmap was an important milestone for the Australian insurance industry, providing a framework for insurers to substantially cut emissions this decade, with specific targets to achieve net zero by 2030 for their operations, and work towards achieving net zero across their investments, supply chain and underwriting no later than 2050.”
Since the launch of the Climate Change Roadmap, the ICA has continued to ramp up its activities to support members in managing climate-related risks and advocating for policies that help mitigate and reduce the impacts of climate change. The latest annual update showcases the significant progress made by ICA members in implementing the roadmap’s recommended best practices.
Australia’s mandatory climate reporting regime was legislated in September 2024, introducing a phased approach for entities meeting certain size thresholds to disclose their climate-related risks and opportunities. Starting 1 January 2025, the largest emitters and corporates will be required to disclose detailed information on their climate-related risks and opportunities. Smaller entities will follow, with disclosure requirements applying from 1 July 2026 and 1 July 2027.
Throughout 2023, the ICA actively engaged in a series of consultations with Treasury and the Australian Accounting Standards Board (AASB) on the proposed mandatory climate disclosure framework and supports the regime’s alignment with international standards and its role in enhancing transparency and accountability in addressing climate risks.
Recognising the significant expertise and resources required to meet the new reporting standards, the ICA has developed range of guidance materials to support its members and the broader general insurance industry to comply with mandatory climate disclosure requirements.
These resources aim to equip members with the tools they need to effectively navigate the evolving landscape of climate-related disclosure and drive action towards a more sustainable future:
- Scope 3 Emissions – In partnership with Andefena, the ICA developed best practice guidance tailored for the insurance industry on how to measure and report Scope 3 emissions. This guidance builds on existing standards and guides, focusing on the categorisation and calculation of claims emissions, mapping the value chain, and determining an entity’s reporting boundary.
- Transition Planning – A credible transition plan is a key tool for companies to outline how they will meet their climate commitments. It details the policies, products, services and milestones necessary for success. The ICA has developed best practice guidance to help members prepare credible transition plans that meet the regulatory requirements in Australia while incorporating global best practices.
- Climate Scenario Analysis – Climate Scenario Analysis is a tool designed to enhance business resilience and support decision-making by quantifying the potential impacts of climate-related risks on operations and financial performance. The ICA has produced best practice guidance to assist members conducting scenario analysis as part of their compliance with Australia’s mandatory climate disclosure regime.
Whilst each insurer will tailor their approaches in a way that works best for their individual businesses, these guides are designed to support best practice execution.
The ICA collaborates with some of Australia’s leading experts and research institutes to produce detailed reports that address emerging climate risks, policy gaps and solutions. Key reports include:
- Actions of the sea: The ICA Climate Change Action Committee investigated community concerns regarding coastal hazards and sea level rise by commissioning an issues paper into Actions of the Sea. This report, delivered by Baird Australia, identifies key issues related to coastal hazards and offers recommendations to enhance Australia’s resilience against these challenges in the context of rising sea levels.
- Cyclones and Flooding: With the increasing frequency and severity of extreme weather events, strengthening building codes and construction quality are critical to maintaining Australia’s insurability. To explore this, the ICA commissioned the James Cook University Cyclone Testing Station, in association with Risk Frontiers, to assess the impact of flooding and tropical cyclones on modern housing. The reports provide key insights and recommendations to improve resilience in the face of a changing climate.
- Charging Ahead: Electric Vehicles & Insurance: As the Electric Vehicle (EV) market continues to expand in Australia, there is a clear role for insurers to unlock the opportunities this transition presents, as well as managing any potential risks. In this industry paper, the ICA outlines the policy and regulatory landscape of the EV market, the underwriting considerations for EVs, and highlights opportunities for the insurance industry. The report also provides key recommendations for government action to support the growth of this market.
- The Cost of Extreme Weather: Australia is one of the most vulnerable developed countries to climate impacts, with many Australians already experiencing the direct impacts of climate change in their daily lives. To examine the economic and social costs of extreme weather, the ICA commissioned The McKell Institute to review the latest literature and explore the value of resilience building measures and future-proofing.
Building on its previous Climate Vulnerability Assessment (CVA) of the Australian banking sector, the ICA and Australian Prudential Regulation Authority (APRA) launched a CVA for the insurance sector in 2023. The banking CVA had assessed how Australia’s five largest banks would operate under two climate scenarios—1.8°C and 3°C plus of global warming—revealing that climate change could lead to increased lending losses by 2050. While the banking system was deemed resilient enough to absorb these impacts, the assessment highlighted a likely reduction in lending to high-risk areas, such as northern Australia, and to transition industries, like manufacturing and mining.
Insurance is an integral component of Australia’s financial system, and affordability is important for its widespread adoption. The insurance CVA, led by APRA, is working with Australia’s five largest general insurers to better understand the potential impacts of climate change on home insurance affordability out to 2050.
In 2022 the Australian Government announced a new partnership called the Hazards Insurance Partnership (HIP), a single touchpoint between the Australian Government and the insurance industry. The HIP aims to bring government and industry together to share data and inform government decisions around mitigation infrastructure and better understand issues facing the insurance industry, with a goal to moderate rising insurance premiums.
The ICA has built key partnerships to help tackle climate risk and strengthen resilience. These collaborations span across industry, government and community groups, including partnerships with the Resilient Buildings Council, Fire & Rescue NSW, the Australian Institute of Company Directors, the Minderoo Fire and Flood Mission, and Queensland Fire and Emergency Services. Additionally, the ICA works closely with local governments alliances such as the Canberra Region Joint Organisation and the Southeast Councils Climate Change Alliance.
International Partnerships
- Commonwealth Insurance Peaks Collaborate on Global Insurance Protection Gap: Following the ICA’s Global Insurance Protection Gap Forum held in Sydney in October 2024, the ICA wrote jointly with the ABI, IBC, ICA, and ICNZ to the respective nations calling for the Global Insurance Protection Gap and the impacts of extreme weather on resilience to be included in discussions at the Commonwealth Business Forum. This collective effort aims to ensure that addressing the insurance protection gap becomes a priority on the global stage.
- California-Australia: Flood and Fire Summit Australia and California share many similarities in natural hazard risks, economies, regulatory environments, and cultural ties, with longstanding connections across the Pacific. In July 2024, the ICA and the California Department of Insurance, supported by the American Chamber of Commerce in Australia (AmCham), hosted a landmark Wildfire and Flood Summit in Sacramento, California. This summit brought together leaders from the insurance industry, catastrophe management, climate science, and government agencies to develop a blueprint for cross-border collaboration in addressing shared risks.
- United Nations Principles for Sustainable Insurance (PSI): The ICA is a founding member of the United Nations Principles for Sustainable Insurance, recognising the important role this global initiative plays in advancing the understanding of how insurers can contribute to managing the physical, transition, and liability risks associated with climate change. Through this membership, the ICA is committed to supporting the global movement towards more sustainable and resilient insurance practices.
Nature-Positive Insurance
Nature loss and climate change are explicitly linked. Climate change is a leading driver of nature loss, and nature loss accelerates climate change. Together, these challenges pose significant risks to the insurance industry, driving up claims costs, increasing insurance and reinsurance prices, and potentially making coverage less affordable. By 2050, the cost of climate-related extreme weather events is projected to reach $35.2 billion annually in Australia by 2050 —an increasing burden that will make it more difficult for insurers to provide affordable protection.
To ensure that Australians continue to have access to affordable insurance protection, the ICA is supporting the general insurance industry in adopting nature-positive practices that promote environmental sustainability and resilience.
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The insurance industry plays a critical role at the intersection of risk management, investment, and underwriting. This unique position places the industry at the forefront of the transition to a nature-positive future. In September 2023, the ICA published its inaugural nature report, co-authored with EY, following the release of the full framework of Taskforce on Nature-related Financial Disclosures (TNFD). The ICA, alongside its members, engaged with the TNFD on the design of its framework for disclosing nature-related risks, impacts, dependencies and opportunities, ensuring the insurance industry is prepared to support the shift towards a nature-positive future.
- Advancing Resilient Nature Positive Insurance in Australia: This report delves deeper into the connections between insurance and nature, exploring how the industry is linked through activities such as underwriting and investment in sectors that rely on natural resources or the provision of ecosystem services. In partnership with EY, the ICA examines the concept of nature-positive insurance and highlights opportunities for Australian insurers to take a proactive role in this transition.
- Valuing Nature for a Resilient Future: In partnership with EY, the ICA produced its first nature briefing report in September 2023, exploring the relationship between insurers, nature and the Taskforce on Nature-related Financial Disclosures (TNFD). This report identifies key links between the insurance industry and nature, offering practical steps that insurers can take to integrate TNFD considerations into their decision-making processes and business strategies.
The General Insurance Protection Gap
Across Australia, premiums are rising—whether or not communities are directly exposed to extreme weather. This is due to several factors: the escalating cost of extreme weather events, the growing value of insured assets, inflation in the cost of building and motor repairs, and increasing cost of doing business for insurers. Insurance claims from catastrophic events have risen by nearly 50% in the past five years. Flooding, which is Australia’s most costly natural peril, now puts around 1.2 million properties at risk. The costs of extreme weather are expected to grow from $4 billion per year to $8.7 billion per year by 2050.
These challenges are not unique to Australia—globally, insured losses from natural catastrophes annually have exceeded US$100b in six of the last seven. Driven by insurers’ advocacy, there is growing interest from policymakers and other stakeholders in the protection gap and exploring solutions.
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The insurance ‘protection gap’ is the extent to which potential economic losses are not covered by insurance. These losses may be underinsured, meaning insurance does not cover the full replacement value of the loss, or there may be no insurance coverage in place. Protection gaps exist at a household or business level, as well as across communities, regions and economies. Protection gaps erode the ability of societies and economies to rebuild and recover when disaster strikes, often affecting our most vulnerable populations and leaving behind an enormous financial burden.
The increasing frequency and severity of extreme weather events in Australia – such as bushfires, floods, and cyclones – highlights the growing financial toll of environmental degradation. In the five years since the 2019-20 Black Summer bushfires, insurers have paid out almost $20 billion in natural disaster claims from 14 declared catastrophes and seven significant events. These events are having a direct impact on the cost of insurance premiums, particularly for vulnerable communities in high-risk locations. As premiums rise, the protection gap widens, leaving many Australians without the financial protection of insurance coverage.
Globally, in 2023, only 38%, or USD 108 billion, of global economic losses of USD 280 billion were insured. Australia remains a well-insured nation, but nonetheless global reinsurers estimate the protection gap for natural catastrophe losses over the decade 2014–2023 to be US$12 billion. To put this into perspective, that is one-third of the estimated US$37 billion cost of natural catastrophes over the same period
Activity that supports net-zero and safeguards nature are emerging as effective strategies for insurers to protect insured assets and build resilience to extreme weather events. This serves to moderate current and future risk – action that is essential to reducing the impact of damage in our climate, natural and built environment and alleviating rising pressure on insurance premiums.
ICA Insurance Catastrophe Resilience Report 2023-24: The latest ICA catastrophe report examines the costs of extreme weather in Australia and provides an overview of the 2023-24 catastrophe season. As Australia faces some of the most significant climate-related risks in the world, Australian insurers are positioning themselves at the forefront of global efforts to respond to extreme weather.
ICA Submission to the inquiry on the Impact of Climate Risk on Insurance Premiums: In order to maintain affordable insurance coverage, urgent action is needed to enhance the resilience of Australian homes, business, and communities. This includes rethinking what and where we build, as well as accelerating Australia’s transition to a net-zero economy. In a comprehensive submission to the House of Representatives Standing Committee on Economics Inquiry into Insurers’ Responses to 2022 Major Floods, the ICA highlights key recommendations for improving insurance affordability and ensuring that the industry can continue to provide essential coverage in an increasingly volatile climate.
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