Insurance companies are bracing themselves for an increase in weather-related disasters as a result of climate change, as the industry awaits an influx of claims from two events in the past week.
New Zealand is beginning its estimated NZ$2 billion clean-up after Saturday’s destructive 7.1 magnitude earthquake in the South Island region of Canterbury, while Victoria is facing a $20 million damage bill from flooding after the state was lashed with heavy rainfall over the weekend.
Karl Sullivan, general manager of risk and disaster planning at the Insurance Council of Australia, told Crikey the insurance industry is preparing itself for any increase.
“The general insurance industry is focused on the changes required in the community in order to ensure the community is well prepared for climate change,” Sullivan told Crikey. “Improved risk-based land-use planning, and a modernisation of the Building Code to include property durability, are issues that require further attention in Australia.”
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According to the Insurance Australia Group, of Australia’s most costly insured events, 19 out of 20 were weather related, while the average annual cost of natural disasters between 1967 and 1999 is $1.087 billion.
Karl Sullivan told Crikey the insurance industry was watching the scientific community closely for a guide on how extreme weather patterns may change into the future: “The industry relies upon the scientific data presented by the IPCC and government as a guide for how extreme weather patterns may change into the future.”
A survey of the insurance industry completed by Zurich last year found three in four brokers agree that Australia is experiencing a change in climate. While modelling has been split over any exact increase in disasters as a result of climate change, many insurance companies are betting a rise in temperatures is likely to result in an increase in floods, cyclones, fires, droughts and possibly earthquakes.
A hot issue amongst the insurance industry is how much climate change will impact on the premiums that policy holders eventually pay. Karl Sullivan told Crikey premiums will rise if the climate change risk is not mitigated.
“Premiums are a direct function of the risk of an insured event occurring and the value of the insured property. If the risk to an insured asset increases overtime, the cost of protecting it against that risk will naturally increase,” he said.
According to the Insurance Australia Group, early action is the best way of ensuring insurance remains affordable and available to all consumers. Sullivan agrees: “This underlines the importance of implementing rigorous risk based changes to building codes and land-use planning structures today, so that the underlying risk of damage to the structure can be managed into the future.”