Monday, August 19, 2024

New data released today by the Insurance Council of Australia (ICA) shows that the impact of extreme weather on the Australian economy has more than tripled over the past three decades.

Insured losses from declared insurance catastrophes have increased from 0.2 percent of GDP between 1995 and 2000 to 0.7 percent in the last five years. This means that losses from extreme weather events are consuming an ever larger share of our economic resources.*

In monetary terms, insurers have paid out an average of $2.1 billion per year to customers affected by extreme weather events over the past 30 years. However, in the past five years alone, the average annual cost of claims from extreme weather events has more than doubled to $4.5 billion. This is largely due to rising costs from flooding.**

And while the total amount of premiums collected by insurers has increased from $50 billion in 2012 to $86 billion in 2023, insurers’ profits have not kept pace and have remained flat during this period.***

The new data analysis is included in the Insurance Council of Australia’s Insurance Catastrophe Resilience Report 2023-24, released today.

The report shows that insurers incurred $2.19 billion in claims due to declared extreme weather events in 2023-2024, the same amount incurred from extreme weather events in the previous 12 months.

However, the number of claims from events in the past 12 months was almost 157,000, 66,000 more than in the previous period. This shows that while the average amount of damage from recent weather events was lower, the impact was more extensive.

The most expensive extreme weather event of the past twelve months was the Christmas storms that hit the Gold Coast hinterland and parts of New South Wales and Victoria, causing damage claims of $1.33 billion.

The event with the greatest impact on individual customers occurred in mid-December in Far North Queensland, where the average claim amount was $36,000, almost three times the average claim amount during the Christmas storms.

The report outlines the policy solutions needed to improve community and household resilience to weather extremes, including improved land-use planning, stronger building codes, and ongoing investments in resilience measures such as flood levees and home strengthening.

The Insurance Catastrophe Resilience Report 2023–24 will be launched this evening in Parliament House in Canberra.

www.insurancecouncil.com.au/CatastropheReport

Quote from ICA CEO Andrew Hall:

The ICA’s latest Insurance Catastrophe Resilience Report shows the impact of extreme weather on our communities over the past 12 months.

Floods are Australia’s most costly natural hazard, with an estimated 1.2 million households at some flood risk.

Around 230,000 of these buildings have an annual flood probability of 1 in 20, and a further 420,000 buildings have a flood probability of 1 in 50 or 1 in 100. This probability is reflected in higher premiums, which in turn can lead to a growing protection gap.

In recent years, policymakers in Australia have started to look at this issue more seriously. In many ways, we are world leaders in terms of mitigating extreme weather risks and the product offerings insurers have to manage these risks.

But we must redouble our efforts if we are to tackle the impacts of increasing weather extremes in the context of climate change.

The only sustainable way to reduce pressure on insurance premiums and close the protection gap is to reduce risks: through better planning to stop building houses in risk zones, through stronger buildings that can better withstand extreme weather, through increased investment in public infrastructure to protect communities, and through an ongoing home buyback program when no other remedy is possible.

*ICA data on disaster losses (5-year average) relative to GDP (GDP index, ABS)
**ICA data on catastrophe losses adjusted to the Consumer Price Index (CPI)
***Estimated based on gross premium published by APRA, increased by taxes and fees