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Insurance premiums increase while extreme weather conditions become more frequent



Updated

November 08, 2018 11:16:28

Owners and residential property companies are likely to face higher insurance premiums after a new actuarial index warns of an increase in financial risks from extreme weather events.

Key points:

  • Climate index that is updated every season
  • Developed with regulators and natural hazard scientists using national data
  • Potential losses from coastal erosion are estimated at $ 88 billion, except land values

The Australian Actual Climate Index monitors risk factors such as elevated sea levels, droughts, fires, cyclones, floods and extreme temperatures as more and more often as growing evidence of climate change.

The index, developed by the leading actuary and director of Finiti Consulting, Tim Andrev, warns of the frequency of extreme conditions this fall was higher than the historical extreme in the autumn between 1981 and 2010.

"It's fair to say that this is quite a new area for everyone and you can imagine special insurers who are worried that they have to charge adequate risk premiums they are taking," Andrev told AB's AM program.

"The index clearly shows that we have an increase in the incidence of extreme events, and over time it could be expected that many people in the areas of the northeast and flood areas will face some increase in the premium.

"One of the challenges for us is to make sure we build real estate in the right places so as to reduce the impact in the future."

The Australian Prudential Control Agency (APRA), which oversees banks and insurers, warned last year that the risks of climate change are "predictable, material and effective".

APRA Executive Director Geoff Summerhaies said this index is an important step towards a cross-industry standard for detecting the risks of extreme weather events and implications for business, consumers, developers and governments.

"We believe this initiative is a positive step towards helping regulated entities understand and manage the potential impact of climate risks on their business," Summerhaies said.

The index – to be updated quarterly and supported by the Bureau of Meteorology and CSIRO – is based on similar indexes currently used in Canada and the United States.

Executive Director of Actuarial Institute Elaine Grace said the index is "the first step" because actuaries are developing more explicit climate risk measures.

"We hope to build this index by adding risk data, such as property damage and health statistics, to understand the relationship between extreme weather and risk, enabling explicit risk indexes to develop," Grace said.

The index contributes to concerns about future climate change losses after the Climate Institute warned in 2016 that the potential damage from offshore erosion is estimated at $ 88 billion, excluding land value.

The index was developed in consultation with regulators and scientists of natural hazard with data collected at the national level and grouped in twelve climatically similar reasons.

Tim Andrevs is eager to stay away from the cynicism policy on climate change, but hopes that moving toward greater awareness will not be overshadowed by the clutches of climate change.

"It's an inevitable risk with these problems. I am often disappointed with politics and I hope this message is not lost."

Topics:

business-economic and financial,

insurance,

climate change,

Australia

First published

November 08, 2018 10:42:08


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