Insurers warn climate change will increase disaster damage bills
Australia needs to curb spending on cleaning up after disasters and more on preparing for them, insurers say.
A top executive at the nation’s finance regulator has warned climate change is expected to increase the damage bill from natural disasters in northern Australia.
Speaking ahead of appearance on Wednesday at an insurance hazards conference on the Gold Coast, APRA executive board member Geoff Summerhayes said more spending was needed on climate risk mitigation and protecting Australia’s north against natural disasters.
Mr Summerhayes said the “fundamental problem” facing Australia’s insurers was the increasing occurrence and severity of natural disasters, with damages claims ultimately passed on to customers through higher premiums.
With climate change expected to worsen the impact of weather events, he warned that more money had to be spent by governments to improve infrastructure to better protect communities and alleviate pressure on insurers.
“Insurers price their policies according to risk, with policyholders at greater risk paying commensurately higher costs,’’ Mr Summerhayes said.
“Rising insurance premiums in northern Australia are therefore a symptom of a deeper problem, which is the growing threat these communities face from natural disasters.
“Hundreds of millions of dollars each year are spent on disaster funding, but about 97 per cent goes towards clean-up and recovery, with only 3 per cent directed to mitigation and prevention.
“Addressing this imbalance will save money in the long-term by reducing the physical loss and economic disruption caused by storms, floods, cyclones and bushfires.”
In a separate APRA submission to the Australian Consumer and Competition Commission’s inquiry into Northern Australia insurance Mr Summerhayes argued governments needed to consider measures including installing more flood levees and seawalls and to produce comprehensive risk mapping.
Mr Summerhayes said more robust building codes were also needed to mitigate risks in northern Australia.
Insurance Council of Australia chief executive Rob Whelan backed Mr Summerhayes, saying the current imbalance between disaster relief funding and prevention needed to be corrected.
“Risk-based pricing means property owners at greater risk pay higher premiums, and the Insurance Council of Australia agrees insurance prices in northern Australia are a symptom of a much deeper problem,” Mr Whelan said.
“Mitigation and resilience projects should be treated by governments as nation-building infrastructure that protect communities, generate jobs and improve regional economies.”
The ACCC’s first interim report, from the inquiry, found premiums in cyclone and flood-exposed parts of northern Australia rose 130 per cent over the past decade, compared to the 50 per cent hikes across the rest of Australia over the same period. The inquiry has heard that concerns have arisen about the ability of some households and businesses being able to afford cover.
Recent analysis from Moody’s Investors Service showed natural disasters can significantly lower property values in the affected areas and raise the risk of mortgage delinquencies.
The flood mitigation infrastructure installed following the 2012 floods in the southwest Queensland town of Roma was given as an example of positive public works, with data showing insurance premiums fell by 50 to 90 per cent following the completion of work.
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout