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Updated
Owners of residential real estate and businesses are likely to face higher insurance premiums after the new actuarial index has warned of rising financial risks due to extreme weather events.
Key points:
- Climate index to be updated every season
- They have been developed with natural-risk regulators and scientists using national data
- Potential losses due to coastal erosion are estimated at $ 88 billion, excluding land value
Australian climate actuarial indices are accompanied by risk factors such as rising sea levels, drought, fire, cyclones, floods and extreme temperatures that are more frequent than ever-increasing evidence of climate change.
The index, developed by the leading actuary and chief financial officer of Finity Consulting Tim Andrew, draws attention to the frequency of the extreme situation of the autumn, which was higher than the historical extremes of the autumn between 1981 and 2010.
"It's fair to say that this is quite a new area for everyone and you can imagine that insurers are particularly worried about having to charge appropriate premiums for the risk they are taking," said Andrew.
"The index clearly shows that we have an increased frequency of extreme events. And we could eventually expect that many people in areas that are spreading over the surface and exposed to floods face some premium increases.
"One challenge for us is to make sure that we build properties in the right places to reduce the impact in the future."
The Australian Prudential Supervisory Authority (APRA), which controls banks and insurance companies, last year warned that the risks of climate change are "predictable, material and usable".
APRA Executive Director Geoff Summerhayes said the index is an important step towards a cross-sectoral standard for the detection of the risks of extreme weather events and consequences for businesses, consumers, developers and governments.
"We believe this initiative is a positive step towards helping regulated entities in understanding and managing the potential impact of climate risks on their business," Summerhayes said.
The index – to be updated quarterly and supported by the Meteorological Office and the CSIRO – builds on similar indexes currently used in Canada and the United States.
Executive Director of the Actuaries Institute, Elayne Grace, said the index was "the first step" as actuaries develop more explicit measures on climate risks.
"We hope to build on this index by linking risk data, such as property damage statistics and health statistics, to understand the relationship between extreme weather and risk, which would allow for the development of more explicit risk indexes," Grace said.
The index is further concerned about future climate change losses after the Institute for Climate Change warned in 2016 that the potential damage caused by coastal erosion was estimated at $ 88 billion, excluding land.
The index was developed in consultation with natural disaster legislators and scientists with collected data at national level and grouped together for twelve climatically similar reasons.
Team Andrews wants to avoid a policy that surrounds cynicism about climate change, but hopes that the shift towards greater awareness will not be overshadowed by the cynics of climate change.
"This is an inevitable risk with these issues. I am often disappointed with the policy and I hope that this message is not lost."
Topics:
business-economic and financial,
insurance,
climate change,
Australia
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