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The effects of climate change on the Australian and global home insurance

Climate change used to be an environmental problem but now it is affecting the insurance industry. The fires that ravaged north and western Australia in 2019, and California in 2018, caused a lot of damage and death. The Australian Bureau of Meteorology and SIO reported that the fires have reached catastrophic proportions for the first time in 10 years and more fires are expected this summer. Both agencies link the fires to climate change which is causing high temperatures, longer fire seasons and powerful storms. The high volume of insurance claims has pushed the cost of home insurance in those areas so high that it is no longer affordable by low income people. Obviously, extreme weather is going to affect insurance policies in the future. 

The Northern Territory, north Western Australia and north Queensland have become high-risk zones, or “a zone where insurance companies go to lose money” due to frequent flooding, cyclones and fires. The report of the inquiry released by the Australian Competition and Consumer Commission in November 2018 found that home and contents insurance premiums in this region have risen by 130% in the last 10 years with averages of $3,500 per year in north Western Australia, $2,400 in north Queensland and $2,220 in the Northern Territory. The average cost for the rest of Australia is $1,300. 

What do Insurers say about this problem?

The chief climatologist of Munich Re, a global reinsurance company, warned that natural disasters are going to affect the cost of insurance and insurance may one day be afforded only by the rich, creating a social problem. 

The Insurance Council of Australia is also concerned about the effects of climate change on insurance and they mentioned the need for appropriate and affordable insurance products. Climate change might affect the whole country one day and Australian policyholders will need protection for the possible risks. Huddle Insurance says it looks at possible risk and probability of occurrence and already some applicants are failing to get home insurance. It is working with underwriters to create insurance solutions that may suit this problem.

The insurance industry needs transformation

Obviously, insurers and underwriters have to start reducing operational costs to make their products more affordable. Artificial intelligence (AI) enables the automation of tasks, reducing the need to employ many people while making access to information, underwriting and claim processing faster and easier. For example, Huddle Insurance deployed chatbots to automate the claims process and may soon automate other functions. If more insurance companies adopt AI-driven technology, they can reduce operational costs and afford to reduce insurance premiums.

How can government help?

Governments are aware of the climate-change-induced natural disasters and how these are affecting lives. According to Huddle Insurance, “A clear and globally consistent climate policy and a plan to transition to renewables would help reduce the uncertainty faced by insurers and other businesses… Climate change is already impacting insurance. The increasing frequency of floods, fires, storms and surges are all contributing to premium increases.”

Claiming home insurance after the fire

The Insurance Council of Australia has declared the fires a catastrophe and fire-related claims in the affected areas are now being prioritized. People who have been affected should contact their insurers immediately after the fire. If they lost their insurance documents, they can find copies at their insurance company. They are being advised to stay away from their properties until it is safe to return and take advantage of the emergency accommodation clause in their insurance. When it is safe to return home, they should take photos of everything as claims evidence and never remove anything from the property unless it is dangerous to keep. Lastly, they should never fix their homes without the insurer’s approval as that may void their insurance.

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Roland Bleyer

Mate produces well-researched content that is unbiased and balanced. Our research team is led by Roland Bleyer who regularly features in the media as one of Australia's leading experts in consumer finance. This year he has been featured on 7NEWS, News.com.au, Womens Day, The West Australia, SMH, Your Money, Channel 10 and many more. Roland's company is an Australian Credit License holder and he is an authorised credit representative. We rely on official government and bank sources as well as data released by Australia's leading comparison engines.

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