The growing financial impact of climate change on the insurance sector has caused a leading figure in the industry to change his stance on the cyclone reinsurance pool announced by the federal government in May.
Nick Hawkins, managing director and chief executive officer of Insurance Australia Group (IAG), recently told Australian Financial Review that the rising costs of insuring against natural perils had caused him to overcome his reluctance to be involved in the federal reinsurance pool.
“Industry has, in the past, not supported that concept, but because there’s not really an obvious other answer, the industry has said: ‘Well actually we need to be part of the solution here’,” Hawkins told AFR. “We are working with government, local communities, and Treasury around the design of that. This reinsurance pool will be effectively a government-funded support to help with the affordability of insurance.”
The insurance industry is giving more attention to the federal reinsurance pool for cyclones and related flood damage, which is backed by a $10 billion guarantee, following the release earlier this week of a report from the UN’s Intergovernmental Panel on Climate Change (IPCC) that warned of more frequent and severe weather events caused by rising global temperatures.
“It is very likely that heavy precipitation events will intensify and become more frequent in most regions with additional global warming,” IPCC’s report said. “At the global scale, extreme daily precipitation events are projected to intensify by about 7% for each 1°C of global warming (high confidence).”
The impact is already felt in Northern Australia, where the increasing intensity of cyclones and flood events have reduced the capability of many uninsured and underinsured households to financially recover from these events.