Wednesday, 28 November 2018

The climate change risk coastal towns and villages don't discuss enough

Financial Review, 15 November 2018:

Insurance giant IAG has warned a failure to reduce greenhouse gas emissions could result in a world that is "pretty much uninsurable", with poorer communities likely to bear the brunt of the effects.

In Australia, IAG said temperature increases of more than 3 degrees would expose greater swaths of Queensland to cyclones and flooding, while a rise of more than 4 degrees could make the risks to insurers prohibitive.

Timaru Herald, 26 May 2018, p.7:

Anyone now considering a coastal property should know what sea level rise is.
If they already own one, they shouldn't be surprised if buyers expect to know how it might affect them.

It's time to accept these properties may come with some risk, and let government and other agencies get on with the job of preparing without worrying about court battles over lost capital gains.

It's an inconvenient truth, but it appears that the value of flood- prone property will go down and many coastal towns will face a new threat.

The Sydney Morning Herald, 14 February 2018:

If any Australian company needs to come clean over its climate risks, it’s QBE.
Not just so shareholders can understand how secure (or not) their capital is as climate impacts intensify.

This is about Australians being able to see just how perilous our future has become without urgent action to cut greenhouse gas emissions.

Last October QBE said it expected 2017 to be the costliest year in the history of the global insurance industry, flagging a $US600 million ($767 million) hit to its pre-tax earnings. They weren't wrong, nor were they alone.

The triple-whammy of hurricanes Harvey, Irma and Maria hitting the US and Caribbean contributed to a record $US135 billion in payouts globally on natural disasters. Wildfires in California made things worse and, for Australian general insurers, Tropical Cyclone Debbie added to the pain.

Tom Herbstein, of Cambridge University’s insurance industry-funded project ClimateWise, summed it up in saying “climate change fundamentally challenges the existing insurance business model.”

And understandably there have been some drastic responses from within the industry. Hannover Re was even forced to sell its entire stock portfolio, worth €953 million ($A1.5 billion) , prompted by natural disaster claims.

Costly natural hazards are nothing new to QBE or indeed any of Australia’s big three general insurers.

Last year, individual large claims and natural hazards cost QBE $1.7 billion, or 15 per cent of the company’s net earned premium.

Compare this to the seven year average of 8.1 per cent to 2010, and you get an idea why QBE called it “unprecedented”.

Additionally, over the past decade, IAG under-provisioned for natural hazard claims by almost $1 billion while Suncorp under-provisioned by $1.9 billion.

It appears none of our general insurers are keeping up with the pace of climate change.


The role of general insurance is to assist policyholders to recover from losses, such as those caused by extreme weather events. With expertise in risk management developed over hundreds of years of operation, general insurers play a critical role in communicating, managing and responding to the the risks that many policyholders face today, as well as how those risks may evolve under a changing climate.

It follows that the general insurance industry naturally supports community policy adjustments that will enhance resilience to extreme weather, as well as measures that may assist to reduce emissions.

Using the industry’s expertise in the pricing, transfer and management of risk, the following activities being undertaken by the industry are intended to assist policy-makers and communities to address the implications of climate change:

Maintain the strong prudential foundations underpinning the Australian market, to ensure that the industry continues to be able to respond to large disaster events when they occur.

Manage the commercial, individual and community-level risks posed by climate change via innovative risk-transfer solutions.

Ensure that risk-transfer solutions deliver competitive price signals, through risk based pricing, that assist communities and decision makers to recognise and adapt to current and emerging extreme weather risks.

Assist to increase community resilience over time by sharing industry expertise that will help policy decision makers and the community to:
Reduce exposures by making development control decisions for exposed locations that are appropriate for both the location and the planned life cycle of the development, accounting for the increased risk posed by the changing climate.

Reduce vulnerability to natural disasters by implementing localised defensive infrastructure where necessary to achieve an acceptable residual risk of damage to an exposed community.

Reduce vulnerability to natural disasters by improving building codes to ensure that built structures remain viable following predictable events over their planned life cycle, accounting for the increased risk posed by the changing climate.

Assist policy-makers to understand the long term economic implications of climate change, as well as the benefits of any appropriate emission mitigation schemes, by providing credible data on current exposures and vulnerabilities, as measured by the general insurance industry.

Assist to implement practical solutions to emission reduction strategies, through the consideration of risk-transfer products that incentivise solutions to be brought to market by other industries.

This policy was approved by the ICA's Board on August 4, 2016.

Coast Adapt, 2015:

Climate change threatens the viability of insurance in Australia and across the globe.

Despite a number of recent ‘quiet’ years, a trend of increasing losses is apparent in Australia and globally due to extreme weather events.

Insurers are covering at a loss some parts of Australia that are considered disaster-prone.

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