Banks and insurers join scientists to tackle climate risk

Days after the insurance bill for Australia’s devastating bushfires, floods and hail storms climbed over $5 billion, Climate KIC announced an initiative to understand the physical risks of climate change.

Made up of scientists from the CSIRO Climate Science Centre and the Bureau of Meteorology to name a few, Climate KIC's Climate Measurement Standards Initiative is seeking to create a scientifically-backed common standard for insurance industry disclosures and the reporting of climate-related physical risks to Australian infrastructure.

Chief executive of Climate KIC, Christopher Lee said, “This will provide companies and regulators with a common understanding of the science and how model-based projections of climate variables can be integrated into physical risk scenario analysis.”

The insurance industry has a vested interest in improving the way climate risks are assessed given the incredibly high costs to its businesses.

The Insurance Council of Australia notes that insurers have already paid more than $2.85 billion for emergency accommodation, business interruption, repair and rebuilding work, replacement of motor vehicles and goods, services and settlements for the 2019/2020 summer alone.

With these figures in mind, it is clear why companies such as QBE, Suncorp, IAG, RACQ, NAB, Westpac, Commbank and HSBC have decided to support the initiative.

445,000 homes could be uninsurable in 30 years

According to a report by the University of New South Wales, more than 445,000 Australian homes will be uninsurable in just 30 years time. Increased extreme weather events, including bushfires and flooding will make it more difficult for financial providers to predict the risks and insure properties and infrastructure properly.

The Climate Measurements Standards Initiative aims to give insurers a way to more accurately predict future repair and replacement costs. 

The future of home insurance

With insurers moving to understand the actual, physical risks of climate change, the future of home insurance is unclear. UNSW suggests that in the future bushfire insurance should be modelled more like medicare insurance.

Whether the industry will see a restructuring in the next five, ten or twenty years time remains to be seen. For now, if you are worried about being underinsured for bushfire damage, why not read our article on home insurance traps to look out for.