Insurance and extreme weather: a test of national resilience
Figures bear this out. Since 2020, Australia has experienced 14 declared catastrophes and eight significant weather events, resulting in $22.5 billion paid out in insured costs over the last five years. This represents a staggering 67 per cent increase compared to the previous five years. Last year alone, general insurers in Australia wrote 86 million policies and paid out around $50 billion in claims, with more than $22 billion directed to everyday Australians for motor and home claims.
As insurance costs rise, the implications for national economic confidence are significant if we don't act together. These figures represent the reality that without a robust insurance sector, businesses cannot expand, banks hesitate to lend, and our society faces economic decline. There will be further social imbalance.
Threat to most vulnerable
The rising cost of weather-related events and the resulting pressure on supply chains and increase in the cost of reinsurance – are key drivers of the rise in premiums for customers. These escalating costs are putting pressure on insurance affordability and availability, especially in high-risk areas. There's a real risk that insurance will become inaccessible for those who need it most. Unfortunately, the most vulnerable often bear the brunt of climate volatility owing to their locations, and without adequate insurance, their ability to recover from disasters is severely compromised.
Against this backdrop, we must continue to advocate for a range of solutions to stop this from happening. Accelerated investment in flood mitigation, preventing housing development on floodplains and ensuring that new homes are built to withstand severe weather are all critical steps.
The role of global reinsurance markets also cannot be overlooked. Deep access to global capital pools is essential for managing the growing risks associated with extreme weather. Australia is well positioned in this regard, including at IAG.
Reinsurers' role
Reinsurers provide the capital and risk-sharing mechanisms that allow local insurers to offer comprehensive coverage to all Australians. This interconnectedness underscores the importance of a strong insurance sector that can withstand local and global uncertainties.
In the wake of recent severe weather, the insurance industry has been under scrutiny, and rightly so. The federal government's inquiry into the industry's response to the 2022 floods highlighted the need for improvement in how we prepare for and respond to severe weather.
At IAG, Australia's largest general insurer, we've reviewed the way we prepare for and respond to severe weather and have made significant improvements to boost available resources, reduce claims handling times, better identify vulnerable customers, and be clearer in how we communicate with our customers.
But there is still work to be done. Trust is paramount, and we must continue to evolve to meet the needs of customers and communities.
To solve the challenges of the next 50 years, we must innovate and evolve for the long-term sustainability of the insurance sector and for every Australian family and business that depends on us. Insurance has always been about protection and will continue to be. But it must also be about leadership and foresight. It's all about being one step ahead of the risks, not one step behind.
For decades, the insurance sector has built strong foundations, alongside government and other stakeholders. The challenge for all of us is to seize this opportunity to make sure we can continue to provide the safety and security Australians have come to depend on so they can thrive in good times and bad.
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