In August, market leader and major private insurer, IAG, warned climate change would be a “game-changer” for the insurance industry. They cited the increasing severity of weather events, which has led to an increase in insurance premiums. The organization has over decades stung conservatives and led the fight for climate action. They highlight the need for innovative and aggressive action at a regional level to address these challenges. Recent disasters such as Cyclone Alfred were responsible for over $1.4 billion in insured losses. This confluence of circumstances is dramatically raising the stakes for the insurance industry and the communities it provides vital services to.
Climate change is a fight that requires all hands on deck, according to James Done from the US National Science Foundation’s National Centre for Atmospheric Science. That goes for companies, sectors, states and the general public. This call to action is particularly timely. Even more alarming is that the insurance industry has absorbed $22.5 billion in costs from extreme weather events in just the last five years, which is a 67% increase from the previous 5-year period.
The Rising Tide of Extreme Weather
Since the start of 2020, Australia has experienced 14 declared catastrophes and eight major weather events. Of particular interest is Cyclone Alfred, which resulted in a mind-boggling 129,000 claims! The damage caused by the cyclone resulted in $1.2 billion in federal government recovery costs alone. IAG has recently released a climate change emergency. It’s critical that communities get to work today, so they will be ready for a future with more intense and frequent extreme weather events.
As Mr. McDonnell, another IAG representative, noted, the intensifying impacts of climate change are already being felt through increasingly severe weather events. Ross stressed that this phenomenon is leading to more extreme storms and drier stretches. He stated, “We can see that storms accelerate faster,” emphasizing the urgent need for adaptation strategies to mitigate these growing risks.
New modelling shows significant growth in the frequency of large hail, especially in highly populated areas of the research Melbourne–Sydney–Brisbane corridor. This change means that areas become susceptible to damaging hail storms are moving further south into the country, increasing the burden being placed on insurers and communities everywhere.
“Recent research shows a noticeable rise in large hail events, particularly in major urban areas, with evidence suggesting a southward expansion of hail-prone regions and more hail days along the Melbourne–Sydney–Brisbane corridor,” – the report
Planning for a Changing Climate
Given these trends, Mr. McDonnell called for retrofitting infrastructure to be forward-looking over the long term. He called for all large infrastructure projects to be planned with at least a 100-year time horizon due to climate projections. This supportive and proactive approach is widely recognized as the best way to reduce risks from rising sea levels and increasingly intense storms.
The new Labor government is batting on the right wicket with ambitious targets. They plan to reduce emissions by 62-70% below 2005 levels by 2035 and achieve net-zero emissions by 2050. Meeting these objectives will take all hands on deck from the public and private sector.
Mr. McDonnell elaborated on necessary steps for adaptation: “Whether that’s improving building codes for all natural perils that could happen through the life of a building … whether it’s about land use planning, or deciding which flood defences to build.” These climate smart measures are essential to prepare today’s infrastructure and future investments to withstand the climate realities of tomorrow.
“As well as doing our part to transition to a low carbon economy and help to reduce the whole problem [climate change], what’s very important is we take the steps that we need to in Australia to reduce the risks and help Australia adapt and be resilient in the face of this,” – Mr. McDonnell
Understanding the Impacts
Climate change is making weather patterns more erratic, resulting in not only a lack of gentle rainy days, but a rise in punishing flash floods. This duality makes successful water management extremely challenging and can actually increase threats from flooding. Moreover, increasing temperatures are projected to play a leading role in creating more extreme bushfire weather days, exacerbating the risks of bushfires.
Dr. Done pointed out that “our challenge is to work together to integrate scientific understanding with risk mitigation and adaptation strategies,” highlighting the need for a unified approach in addressing these pressing issues. Climate change is already exacerbating the impacts of these trends, making it even harder to target where the greatest risks lie.
One of the many troubling findings from the report is the lack of change in a fundamentally dangerous atmosphere. These widespread shifts have increased the risk of hail across Australia’s most populated areas. This trend can significantly increase costs for insurers. They’re about to be hit by a wave of claims associated with extreme weather disasters.
“The higher the rate of greenhouse gas emissions, the more quickly these trends will evolve, acting as a chaotic and pervasive risk multiplier placing more people and property at risk,” – the report
The taxpayer exposure from these increasing costs of response to disasters brought by climate change necessity conversations surrounding increasing insurance premiums. Mr. McDonnell remarked, “The price of insurance is driven by a whole range of factors, including the costs of repair, which have been increasing, regardless of natural perils.” This sentiment underscores deep fears in the sector. It zeroes in on the growing lack of affordability and accessibility of insurance during an era of increasing climate volatility.
