Insurers are not doing enough when it comes to protecting Australian homes in natural disaster-prone areas exacerbated by climate change, according to a new report.
A report released by The Climate Institute entitled There goes the neighbourhood has found that “the insurance sector can and should improve some practices, however its ability to reduce or hedge against overall risk in this area is sometimes overstated”.
“There has been insufficient action from governments, insurers and most notably the banks,” said John Connor, CEO of The Climate Institute.
The report estimated that more than half of households are under-insured. It recommended that insurers “communicate to customers in a clear and consistent way how premiums reflect risks from natural disasters weather extremes, and how those risks would only increase due to climate change.”
However the report did acknowledge that it is not the responsibility of insurers to warn households about long-term climate-related hazards.
The report also recognised that regulators, insurers and governments have begun taking steps to incorporate climate change risk into their assessment processes, while banks are still lagging behind.
The Insurance Council of Australia (ICA) says it welcomes The Climate Institute’s acknowledgement that general insurers are at the forefront of efforts to protect households.
“The report cites steps taken by the ICA and some insurers to fund research into building resilience, and improve the sharing of natural hazard information between insurance companies, governments and households,” Karl Sullivan, acting CEO of the ICA told Broker Buzz.
“There is more that can be done, and the ICA is working to improve community access to building resilience data through the ongoing development of publicly available online tools.”
Sullivan also pointed to how the report recognises the importance of risk-based pricing in discouraging risk-exposed housing development.
“Insurance cannot change underlying risk. Governments must therefore protect communities from known and predicted hazards,” he said.
“The ICA continues to urge governments to invest more in pre-disaster mitigation to reduce the need to spend vastly greater sums recovering from repeated, and often predictable, disasters.
“Improved building standards, risk-appropriate town planning and increased spending on disaster mitigation and resilience measures are all important tools governments can harness to protect households.”
The Climate Institute report’s key recommendations for insurers include:
- Review assumptions about climate change, and ensure they factor in the best possible information to their risk and capital modelling
- Communicate to customers in a clear and consistent way how premiums reflect risks from natural disasters
- Actively support the development of an open and accessible platform for natural peril data, including both historical incidence and projected or emerging risks due to climate change
- Encourage better resilience in Australia’s housing stock