Insurance premiums rising as extreme weather conditions become more common



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Updated

November 08, 2018 11:16:28

Homeowners and homeowners tend to face higher insurance premiums after a new actuarial index has warned of rising financial risks from extreme weather events.

Key points:

  • Climatic index to be updated every season
  • Developed with natural risk regulators and scientists using national data
  • Only potential losses caused by coastal erosion were estimated at US $ 88 billion, excluding land value

Canada's Australian Index of Actuaries tracks risk factors such as high sea levels, droughts, forest fires, cyclones, floods and extreme temperatures as more frequent as evidence of climate change grows.

The index, developed by Fintry Consulting's principal actuary and chief consultant Tim Andrew, warns that the frequency of extreme conditions this fall was higher than the historical extremes in autumns between 1981 and 2010.

"It's fair to say that this is a very new area for everyone and you can imagine that insurers in particular are worried about charging appropriate premiums for the risk they are taking," Andrew told ABC's ABC program.

"The index is clearly showing that we have an increase in the frequency of extreme events, and it would be expected that many people in areas of forest and flood-prone areas faced some premium increases.

"One of the challenges for us is to make sure we are building property in the right places to make sure we minimize the impact in the future."

The Australian Prudential Regulatory Authority (APRA), which oversees banks and insurance companies, warned last year that the risks of climate change were "predictable, material and actionable."

APRA chief executive Geoff Summerhayes said the index was an important step towards an intersectoral standard to expose the risks of extreme weather events and the implications for companies, consumers, developers and governments.

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

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

The executive director of the Actuaries Institute, Elayne Grace, said the index is a "first step," as actuaries develop more explicit measures of climate risk.

"We hope to build this index by attaching risk data, such as property damage and health statistics, to understand the relationship between climate extremes and risk, allowing more explicit risk indices to be developed," Grace said.

The index raises concerns about future losses caused by climate change after the Climate Institute warned in 2016 that potential damage from coastal erosion was estimated at $ 88 billion, excluding land value.

The index was developed in consultation with regulators and natural risk scientists, with data collected nationally and grouped into twelve similar climate ratios.

Tim Andrews is eager to stay away from the politics of cynicism about climate change, but hopes the move toward greater awareness will not be overshadowed by the cynics of climate change.

"That is inevitably a risk with these issues. I am often disappointed with the policy and I hope this message is not lost."

Topics:

business-economics-and-finance,

safe,

of Climate Change,

Australia

First published

November 08, 2018 10:42:08

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