Corporate watchdog chairman Joe Longo says Australia faces an emerging insurance crisis as extreme weather drives premiums higher and makes more properties uninsurable.
Insurance prices rose a colossal 16.3 per cent in the year to November, the fastest rate of any consumer spending category, according to the latest monthly inflation data published yesterday, which the Australian Bureau of Statistics attributed to increasingly severe weather disasters.
‘‘I think there is an emerging crisis, frankly, over insurance [and] whether people will be able to afford insurance, and certainly in those areas where we’re seeing a growing risk of natural disasters,’’ Mr Longo said in an interview with The Australian Financial Review, citing the sector as an area of focus for the regulator, particularly in the aftermath of floods and fires.
Nearly 521,000 Australian homes are predicted to be uninsurable by 2030 due to the risks of extreme weather, according to the latest World Economic Forum Global Risks Report published in Switzerland yesterday.
The report, backed by insurance giants Zurich and Marsh McLennan, painted a dire picture of the decade ahead dominated by extreme weather, growing political polarisation and social unrest. Based on the views of 1500 global risk experts in academia, business and the public sector, as well as a global survey of more than 11,000 executives, the report identified extreme weather as the most likely risk to ‘‘present a material crisis on a global scale’’ this year and over the next 10 years.
As dozens of towns in Victoria and Queensland face growing damages bills from flooding – for some the second hit in as many years – the insurance industry warned of further premium increases and coverage cuts. Andrew Hall, chief executive of the Insurance Council, said that while he thought ‘‘crisis’’ was a little extreme as a description, there was absolutely a growing ‘‘protection gap’’ emerging in Australia and around the world.
‘‘Losses that have been occurring in insurance have made it unattractive for capital,’’ he said. ‘‘So the market has hardened, and the pressure is coming down on premiums.’’
Mr Hall said lowering insurance taxes such as stamp duties would have a short-term benefit of lowering premiums but without structural change the underlying issue would remain. ‘‘At the end of the day it is about risk reduction,’’ he said.‘‘What global reinsurers are telling Australia is we have had significant population growth in areas that have a high peril exposure, and we are now seeing over the past five to 10 years the cost of that is starting to play out.
‘‘There is a job to be done, and it will be a partnership between industry and government to make sure dollars can be directed to actually reduce risk.’’In particular, that meant engaging in major mitigation projects such as dams and levies to reduce the likelihood of future damage.
Mark Tomlins, an insurance analyst with Hunter Green Institutional Broking, said other government steps to help with affordability included planning changes, such as the NSW government deciding against allowing some development on flood-prone areas in the Hawkesbury-Nepean valley.
But other problems lay in legacy areas where development had already occurred, he added, while other pressures on premiums came from shortages in labour for repairs, or in parts for some kinds of damage.In the short term, misinformation and disinformation, societal and political polarisation, cyber insecurity, cost of living and interstate conflict present the most pressing and urgent threats to global property, according to the latest Global Risks Report
.Over the decade, however, the risks are almost entirely dominated by environmental concerns. Extreme weather, critical change to Earth systems, loss of biodiversity, resource shortages and pollution all appear in the most likely and severe risks, along with a consequence of climate change, involuntary migration.
‘‘Environmental risks continue to dominate the risks landscape over all time frames,’’ World Economic Forum managing director Saadia Zahidi said. But how urgent experts regarded the risks to be varied markedly depending on their age and professional background.
Younger experts, along with those from civil society and the public sector, believed climate risks would materialise quicker than their older private-sector colleagues, leading the WEF to suggest there was a ‘‘growing risk of getting past a point of no return’’.
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Y'All will know a 'climate activist' laying deathly imperatives at your feet, and also a denier who thinks CO2 is harmless and good for plant growth.
Both views are incomplete.
Yes, Climate Change is real. Natural disasters just keep coming, more vicious and more frequently.
Leaders and managers were warned of this in the early nineties, and did nothing. Only the insurers paid attention: more storms and floods, more droughts and fires.
Now we have households complaining building insurance is unaffordable - after being flooded twice, who would accept such risk?
Insurers, logically assessing the increasing risks before them, have raised premiums. A lot.
Whether their pool of funds is sufficient for the calamities that almost certainly lie ahead is an open question.
Above, Andrew Hall says: ‘‘Losses that have been occurring in insurance have made it unattractive for capital.’’
We shall see.
Ash
QBE Price at posting:
$14.94 Sentiment: Buy Disclosure: Held
(20min delay)
