Australian insurers need to measure drought with the same precision they already apply to flood, fire, storm and cyclone.
A new analysis from agri-fintech and geospatial data company Digital Agriculture Services (DAS) mentioned that a single flash drought season could cost Australia up to $12bn (US$8.37bn) in lost economic output in 2026-27 alone. A drought lasting several years could push that figure to as much as $29 bn, with rural exports potentially falling by 13-18%.
DAS's new report, ‘the $12bn risk insurers aren't pricing’, examines drought as both an underestimated physical climate risk and a compound accelerant for fire and property damage.
The warning comes as Europe counts the cost of this year's flash drought. The United Kingdom and Western Europe entered 2026 after a wet winter. By August, following their hottest June and July on record, around half of the EU and UK was in drought. Direct economic losses are estimated at more than €50bn.
A flash drought differs from a conventional drought. Instead of building slowly over seasons or years, soil moisture collapses within weeks to a couple of months, driven by intense heat and low humidity as much as by a lack of rain.
In 2017-19, Eastern Australia's 'Tinderbox' drought included some of the clearest flash drought episodes on record, with paddocks that were healthy in November 2017 severely drought-stressed by January 2018. The Australian Bureau of Agricultural and Resource Economics and Sciences is already forecasting a drier 2026-27 season.
DAS has built a national drought dataset covering 3.15m agricultural parcels, measuring drought conditions at each individual property rather than relying on national or regional averages.
The data shows more than 233,000 agricultural parcels experienced drought or drought stress in 2025. Looking ahead, 32,179 rural properties could be exposed to drought stress by 2030 under a moderate emissions scenario, rising to 89,538 by 2050.