The Senate Select Committee has presented its report on the "Impact of Climate Risk on Insurance Premiums and Availability" that contains recommendations that seek to address the immediate challenges of insurance unaffordability arising from climate risk, while providing longer-term solutions for communities.
The committee recommends that:
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The Australian Climate Service and the National Emergency Management Agency work with all levels of government and industry to establish and maintain a national disaster risk map and database, covering all types of natural disasters in Australia, which is accessible to the public
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Insurance companies in Australia be required to provide policyholders with a sufficient breakdown and explanation of insurance premium costs, including details of price changes in response to resilience and disaster mitigation measures undertaken by the policyholder
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The Treasurer issue a Ministerial Direction to require the Australian Competition and Consumer Commission to monitor premium prices across Australia and to publish its monitoring reports on a quarterly basis on its website
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The Australian Government pursue the abolition of general taxes on insurance through the Housing and Homelessness Ministerial Council and other relevant ministerial council arrangements
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Treasury expand the Cyclone Reinsurance Pool to cover all natural disasters. The expansion should: take account of lessons learned from the operationalisation of the current pool; and incorporate incentives for participating insurance companies to invest in disaster mitigation and resilience measures
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The Australian Government increase the Disaster Ready Fund to A$400m ($259m) per annum for investment in disaster mitigation and resilience measures
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The Australian Government pursue the matter of land use and planning laws, including the feasibility of prohibiting future development in high-risk areas, through the Housing and Homelessness Ministerial Council and other relevant ministerial council arrangements
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Treasury develop options for a levy on coal and gas extraction companies, based on the annual energy content they have extracted, from which the funds raised would be invested in disaster mitigation and resilience measures, and the cost of rising insurance
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Climate-driven issues
Senator Mehreen Faruqi, the chair of the Select Committee, in his foreword to the report, said, “The challenges brought about by the increasing frequency of climate-driven disasters in Australia are numerous. The first and most immediate issue is that of the unaffordability and unavailability of insurance, particularly in high-risk areas. However, the committee also recognises that these disasters can no longer be seen as one-off, isolated events as they continue to grow in frequency and intensity due to exacerbating climate risk.
“At the same time, insurance premiums cannot continue to rise unchecked and out of the reach of a growing number of people. Reform is needed to address both climate-driven disasters and insurance to ensure that the disaster insurance gap does not continue to grow.
“For most people in disaster-impacted communities and beyond, insurance is opaque, complicated, and difficult to understand. At the same time, rises in premiums are not explained to the consumer, making it impossible to understand the rationale for jumps in price or what measures to take to counter the rising cost.”
Insurers’ response
The Insurance Council of Australia (ICA) said yesterday that it welcomed the Senate Select Committee report. It says that it supports the committee’s recommendations which would not only help to drive down premiums, but also reduce emissions, improve community resilience and better protect Australians in the face of worsening extreme weather. Over the coming months, the ICA will review and engage with its members on the report’s recommendations.?
On 16 May 2024, the Senate resolved that the Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability be established to gather and analyse evidence and to present a report, with recommendations, to the Parliament. The committee presented its report on 26 November 2024.