How climate change is causing an insurance crisis in Australia – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology

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This article is brought to you through The European Sting’s collaboration with the World Economic Forum.

Author: Stefan Ellerbeck, Senior Writer, Training Content

  • Climate change is leading to worsening wildfires and flooding in Australia.
  • A new report says insurance will become increasingly unaffordable or unavailable in large parts of the country due to extreme weather conditions.
  • According to the Climate Council, of the half a million properties expected to be uninsurable by 2030, 80% of this risk is due to river flooding.
  • The organization also says there is an urgent need to increase funding for adaptation and disaster risk reduction to make the country more resilient to climate change.

A new report says insurance will become increasingly unaffordable or unavailable in large parts of Australia due to worsening extreme weather events.

The Australian Climate Council has released a study that estimates that 1 in 25 of all homes and commercial buildings in the country will effectively become uninsurable by 2030.

Australia’s insurance crisis: a costly legacy

The report, Uninsurable Nation: Australia’s Most Climate-Vulnerable Places, says 520,940 buildings will be considered “high risk”, with annual damage costs equivalent to 1% or more of the property’s replacement cost.

According to the study, flooding of rivers poses the greatest risk to homes. Of properties classified as uninsurable by 2030, 80% of this risk is due to river flooding. Flash floods and bushfires are the other main risks that contribute to making properties uninsurable.

The state of Queensland is seen as most at risk of an impending insurance crisis in Australia.
The state of Queensland is seen as most at risk of an impending insurance crisis in Australia. Image: Australian Climate Council

Five of the country’s top 10 regions considered most at risk from extreme events are in the north-eastern state of Queensland: 6.5% of properties there are expected to become uninsurable by 2030. The report’s authors say that northern Australia is becoming wetter, and there has been an increase in the proportion of intense rainfall events of short duration, increasing the risk of flooding. Meanwhile, there has been an increase in the length of the fire season in large parts of the country since the 1950s.

The report estimates that Australian general insurers paid out $3.89 billion on more than 300,000 claims related to bushfires, floods and storms in the summer of 2019-20. This has prompted reinsurance giant Swiss Re to publicly criticize companies for not always forecasting the cost of natural disasters. Swiss Re said climate change is already bringing about a “new world” of weather uncertainty and this will dramatically increase the cost of insurance in Australia.

Australian insurance crisis
Insurers paid out $3.89 billion on more than 300,000 claims in the summer of 2019-20. Image: Unsplash/Matt Palmer

Call to action to turn the insurance crisis

Newly elected Australian Prime Minister Anthony Albanese was elected to power on the promise of a big change in climate policy. Climate change was a major concern for voters after several years of severe drought, record bushfires and flooding. The Sixth Assessment Report recently released by the UN’s Intergovernmental Panel on Climate Change (IPCC) indicates that Australia is heading towards a future full of similar disasters, with extreme weather events expected to increase.

Australia still relies on coal for most of its electricity generation, making it one of the “dirtiest” countries per capita. It produces 1% of global emissions while representing only 0.3% of the world’s population. It is also a major global supplier of fossil fuels, making it responsible for 3.6% of total global CO2 emissions when this is taken into account.

To help turn Australia’s situation around, the Climate Council is calling for the immediate introduction of 6 policy priorities:

1. Enact rapid and deep emission reductions in the Australian economy

Emissions must be reduced by 75% below 2005 levels by 2030 to prevent extreme weather events from getting worse. Net zero emissions should be achieved by 2030.

2. Eliminate fossil fuel subsidies

The Council says that in 2021-22, the Australian federal and state governments provided a total of $8.2 billion in spending and tax relief to help fossil fuel industries. He says this was 56 times the budget of the National Agency for Recovery and Resilience and is at odds with efforts to tackle climate change.

3. Prioritize investments in resilience

Investing in risk reduction and resilience delivers a “triple dividend” of averted loss and suffering, reduced disaster costs and potential economic and social benefits, the council says. Priority must be given to increasing public investment in resilience.

4. Take climate risks into account in land use planning

Improved policy settings to avoid the insurance crisis are needed at all levels of government to prevent the construction of new buildings and infrastructure in areas that are or will be highly exposed to the vagaries of climate change. Too many Australians live in dangerous places because the risks of extreme weather have not been given sufficient consideration in planning approvals.

5. Improve building standards and compliance

The National Building Code should be amended to ensure that buildings are able to better withstand the risks posed by worsening extreme weather conditions – while simultaneously improving building energy efficiency and thermal comfort.

6. Support communities to “build back better”

Cities and communities need to be rebuilt – where necessary – in a way that takes into account inevitable future climate change and makes them more resilient. In some very high-risk places, this may mean not rebuilding at all. Managed relocations must be an option for some of the most vulnerable and exposed communities to avoid Australia’s potential insurance crisis.