Climate change could put insurance out of reach for many Australians

The financial industry regulator says insurers may be able to pay future claims, but fewer people will be able to secure coverage

Millions of Australians could be left uninsured as the effects of climate change put increasing pressure on the financial system, the industry’s regulatory body has warned.

The Australian Prudential Regulatory Authority (Apra) executive director Dr Sean Carmody told a Senate hearing on Tuesday the nation’s insurers and banks were taking steps to prepare for worsening bushfire seasons and more extreme weather events.

However, he said the resultant rising insurance premiums may put coverage out of reach for many people, threatening the stability of the wider economy.

“From our point of view in terms of thinking of the financial system as a whole, it’s not enough if insurers have the capacity to pay every claim, but there’s a shrinking number of people who can actually secure insurance,” Carmody told the hearing.

“You could extrapolate to a tiny pool where no one has an insurance policy but every claim can be paid. That might still mean there is no insolvency problem at an insurance level, but from a financial system point of view, that represents a failure.”

Carmody said the regulator had been regularly advising large financial institutions about the financial risks posed by climate change.

This advice went beyond the physical and “transitional” risks – that is actions by shareholder activists or protesters – but also to the possibility of future lawsuits where no action is taken now.

“Increasingly, there are court cases here and internationally that suggest if we do not think about and look at climate risk, there’s potential liabilities that arise there,” he said.

The total cost to the insurance industry from extreme weather and natural disasters between November 2019 and February 2020 alone stood in the range of $5bn.

With similar events likely to increase in frequency and extremity in the future, Carmody said Apra was investigating how it may impact the country’s biggest financial institutions over the next 30 years.

Pressed by the Labor senator Tim Ayres on whether climate change would eventually “overwhelm” even the best efforts at mitigation, Carmody agreed.

“The cost of insurance is trending up, which will translate to higher premiums in aggregate,” he said.

His comments follow evidence given by residents still struggling after the catastrophic bushfires of 2019-20.

Michael Brosnan, the chair of community group Social Justice Advocates of the Sapphire Coast, said the insurance issue was making it harder to mount an effective recovery in the area around Cobargo in New South Wales.

Brosnan said his organisation was aware of at least 63 people waiting for basic sanitation some 14 months after the bushfires tore through the region.

“Up until June or July last year, many of these people were driving to Rocky Hall and Wyndham for toilet, shower and internet,” Brosnan said.

Contributor

Royce Kurmelovs

The GuardianTramp

Related Content

Article image
Climate crisis will make insurance unaffordable for people who need it most
In a submission to the royal commission into natural disasters the Consumer Action Law Centre calls for an inquiry into insurance

Adam Morton Environment editor

27, Apr, 2020 @5:30 PM

Article image
Scott Morrison in danger of becoming a 'climate change casualty', says Steve Bracks
Former Victorian Labor premier says the prime minister must act on global heating and put a price on carbon

Ben Butler

14, Jan, 2020 @4:30 PM

Article image
Australia must prepare now for climate-related disasters or pay more later, insurance regulator says
The cost of responding to bushfires, storms and cyclones after the fact is likely to be 11 times greater, Apra warns

Adam Morton Environment editor

14, Oct, 2020 @10:12 AM

Article image
If the bushfires won't force climate policy change, we need to circumvent Scott Morrison | Lenore Taylor
The cabal of Coalition denialists calling the shots are still impervious to facts. But it’s not yet time to despair

Lenore Taylor

16, Jan, 2020 @8:51 PM

Article image
Anti-Adani coalmine activists target insurance broker with virtual protest
Marsh, understood to be working on the Carmichael project, is being hit with online campaign amid coronavirus

Ben Smee

18, May, 2020 @5:55 AM

Article image
Insurance giant Suncorp to end coverage and finance for oil and gas industry
Suncorp’s decision to pull out of industry by 2025 puts it at odds with government push for gas-led recovery

Graham Readfearn

21, Aug, 2020 @4:21 AM

Article image
Suncorp and IAG temporarily stop selling insurance in fire-affected areas of Victoria and NSW
On Tuesday afternoon two of Australia’s biggest insurers had a combined figure of 67 areas under embargo across both states

Ben Butler

14, Jan, 2020 @7:57 AM

Article image
Climate change poses risk to Australia's financial stability, warns RBA deputy governor
Guy Debelle urges policymakers and business to address global warming as a trend rather than a temporary weather cycle

Katharine Murphy Political editor

12, Mar, 2019 @9:08 AM

Article image
Most Australian chief executives believe climate crisis a threat to business
Annual CEO survey found 65% of bosses were worried about climate, even before the bushfire crisis peaked

Ben Butler

20, Jan, 2020 @4:30 PM

Article image
Climate strike in Australia: everything you need to know about Friday's protest
Organisers expect a stronger presence from unions, workers and companies as student activists reach out to adults

Lisa Cox

19, Sep, 2019 @10:44 AM