Climate change is already affecting us and our environment in a variety of ways, and its impacts are projected to become more severe over time.
Climate change is caused by a number of factors, including human activity. Greenhouse gas emissions from burning fossil fuels, land-use changes, and other activities are increasing the Earth’s average temperature.
This is causing a range of impacts, including more extreme weather events, rising sea levels, and changes in the distribution of plants and animals. Climate change has the potential to cause significant damage to our economy, our environment, and our way of life.
Insurance plays a vital role in managing the risks posed by climate change. Insurers provide protection against the financial impacts of climate change, helping to reduce the costs of damages and rebuilding.
Insurers in some areas have stopped offering certain types of insurance coverage, such as flood or cyclone. For the insurers that are able to offer this type of insurance, their premiums have now become unaffordable for many consumers. This has led to many customers chosing to go without insurance cover all together.
The Australian Climate Council released a study that estimated that 1 in 25 Australian homes and commercial structures will become uninsurable by 2030.
Australia’s Insurance Crisis
According to the report Uninsurable Nation: Australia’s Most Climate-Vulnerable Places, 520,940 buildings are deemed “high risk” and will have annual damage costs equal to 1% of the property’s replacement cost.
According to the study, river flooding poses the greatest threat to homeowners’ houses. Flooding will be responsible for almost 80% of all properties that have been declared uninsurable by 2030. Other hazards that make properties uninsurable include flash flooding and bushfires.
Five of the 10 top areas in the country most at risk of extreme events are located in north-eastern Queensland. By 2030, 6.5% is predicted to be uninsurable. The report states that northern Australia has become wetter and there have been increases in the frequency of intense, short-duration rainfall events. At the same time, large parts of Australia have seen the length of fire seasons increase to the longest on record.
The report shows that Australia’s general insurers paid $3.89 billion for more than 300k claims. These claims were related to storms, bushfires, and floods.
The Environmental Commitment of Insurance Companies
Climate change has been a top global concern for years now, and investors are starting to take notice. In November 2021, the International Financial Reporting Standards Foundation (IFRS) established the International Sustainability Standards Board. Standardised reporting allows businesses worldwide to compare their environmental performance and future emissions.
This type of reporting allows large insurers and institutional investors the ability to make substantial policy changes. Sompo is one example. It is one of the top three Japanese non-life insurers and was the first Japanese insurance company to eliminate investment in coal companies. Other international insurers have made similar changes or are in the process of making them.
Insurers are shifting away from investing in high-emission industries. How quickly this will happen, is unknown.
Insurance Should Be Accessible and Affordable
The Insurance Council of Australia has adopted a new approach as the representative body of Australia’s general insurance industry.
They have given the following mandate to their Climate Change Action Committee:
“We are working with the community and governments to ensure that insurance continues to be affordable and accessible through physical adaptations and greater community resilience.”
They have three partnership agreements with specific goals.
- Green Building Council of Australia Future Homes is an organisation that promotes and develops healthy, resilient, and nett zero-energy homes.
- Minderoo Fire and Flood Mission:
- Bushfires can be reduced in scale and severity by being extinguished within one hour of each other by 2025.
- Australia’s 50 Most Vulnerable Communities can be lifted to equal the 50 most resilient Australian communities. This is done by helping communities access the resources and support they need to reduce their disaster risk and make a comeback stronger by 2025.
- Reduce exposure to fire and flood hazards in Australia’s 50 most prone areas by 2025.
- Queensland Fire and Emergency Services’ (QFES), Severe Wind Hazard Assessment Queensland (SWAQ) project is designed to collect information that will be used to help future strategies for managing and reducing severe wind risk in Queensland.
Since 2012, the ICA has been signed by its members and to the United Nations Principles for Sustainable Insurance.
Your Company and Climate Change
Although many of these changes won’t have a direct and immediate impact on your business, they do show that the insurance industry is changing and taking claimate change seriously.
If you would like to review your climate-related risks or your natural catastrophe insurance coverage, please get in touch with our specialist insurance brokers at Trident Insurance today.