Australian Economy

Climate change is causing an insurance crisis in Australia

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

A new report says that 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 which estimates that 1 in 25 of all homes and commercial buildings in the country will become effectively uninsurable by 2030.

Insurance crisis in Australia: a costly legacy

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

River flooding poses the biggest risk to people’s homes, according to the study. Of the properties classified as uninsurable by 2030, 80% of that risk is due to river flooding. Flash flooding and bushfires are the other main hazards contributing to properties becoming uninsurable.

The state of Queensland is deemed most at risk of imminent insurance crisis in Australia.

The state of Queensland is deemed most at risk of imminent insurance crisis in Australia.

Image: Climate Council Australia

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

The report estimates Australia’s general insurers paid out $3.89 billion from over 300,000 claims related to the bushfires, floods and storms in the summer of 2019-20. This prompted reinsurance giant Swiss Re to publicly criticize companies for consistently failing to predict the cost of natural disasters. Swiss Re has said that climate change is already resulting in a “new world” of weather uncertainty and that this will significantly push up the cost of insurance in Australia.

insurance crisis in Australia

Insurers paid out $3.89 billion from over 300,000 claims in the summer of 2019-20.

Image: Unsplash/Matt Palmer

Call to action for turning the insurance crisis

Australia’s newly elected prime minister, Anthony Albanese, was voted into power on the promise of a big shift in climate policy. Climate change was a key concern for voters after several years of severe drought, record-breaking bushfire and flooding events. The recently published sixth assessment report from the UN’s Intergovernmental Panel on Climate Change (IPCC) says Australia is racing towards a future full of similar disasters, with extreme weather events set to increase.

Australia is still reliant on coal for most of its electricity generation, making it one of the “dirtiest” countries per capita. It produces 1% of global emissions while making up just 0.3% of the world’s population. It’s also a significant global supplier of fossil fuels, making it responsible for 3.6% of the world’s total CO2 emissions once that is factored in.

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

1. Enact swift and deep emission cuts across the Australian economy

Emissions need to be cut by 75% below 2005 levels by 2030 to avoid extreme weather events getting much worse. Net-zero emissions should be reached by 2030.

2. Eliminate fossil fuel subsidies

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

3. Prioritize investment in resilience

Investing in risk reduction and resilience provides a “triple dividend” of avoided loss and suffering, reduced disaster costs and potential economic and social benefits, the Council says. Priority must be given to upscaling public investments in resilience.

4. Account for climate risks in land use planning

Improved policy settings to avert the insurance crisis are required across all levels of government to prevent new buildings and infrastructure from being constructed in areas that are or will be, highly exposed to climate change hazards. Too many Australians live in dangerous locations because not enough consideration was given to the risks from extreme weather when planning approval was given.

5. Improve building standards and compliance

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

6. Support communities to ‘build back better’

Towns, cities and communities must be rebuilt – where appropriate to do so – in a way that takes into account the inevitable future changes in climate and makes them more resilient. In some very high-risk locations, this may mean not rebuilding at all. Managed relocations must be an option for some of the most vulnerable and exposed communities to avert the potential insurance crisis in Australia.

Our planet is straining under the burden of a global population of nearly 8 billion people.

The World Economic Forum’s Centre for Nature and Climate accelerates actions on climate change and environmental sustainability, food systems, the circular economy and value chains, and the future of international development.

  • Through the Global Plastic Action Partnership, we are bringing together government, business and civil society to shape a more sustainable world through the eradication of plastic pollution.
  • The centre is championing Nature-Based Solutions. Global companies are working together through the initiative to support 1 trillion trees by 2030. Since September 2021, over 30 companies have committed to conserve, restore and grow more than 3.6 billion trees in over 60 countries.
  • Through a partnership with the US Special Presidential Envoy for Climate John Kerry and over 30 global businesses, the Forum is encouraging companies to join the First Movers Coalition and invest in innovative green technologies so they are available for massive scale-up by 2030 to enable net-zero emissions by 2050 at the latest.
  • The centre is also bringing leaders together to make commitments to a circular economy approach. Globally, the Scale360° initiative will reduce the environmental impact of value chains within the fashion, food, plastics and electronics industries – a significant step in making the $4.5 trillion circular economy opportunity a reality. The African Circular Economy Alliance is funding circular economy entrepreneurs and circular economy activities in countries including Rwanda, Nigeria and South Africa. In China, the Forum’s Circular Electronics in China project is helping companies reduce and recycle 50% of e-waste by 2025.
  • The Forum is also crowdsourcing solutions to the climate crisis through its open innovation platform, UpLink. Since 2020 this digital space has welcomed over 40,000 users who are working on over 30 challenges including reducing plastic ocean pollution, scaling efforts to conserve, restore and grow 1 trillion trees and innovating the production and processing of aquatic foods.

Contact us for more information on how to get involved.

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