A Senate committee investigating the impact of climate risk on insurance premiums should shift its focus to systemic issues rather than blaming the insurance industry for rising costs, according to Dr. Graeme Riddell of Marsh Pacific & Asia.
Riddell noted the inquiry has highlighted a fivefold increase in weather-related disasters globally over the past 50 years. This surge, driven by higher asset values and population movements to high-risk areas, has resulted in significant financial losses for the insurance sector.
These escalating financial burdens are making insurance unaffordable or unattainable for many households and businesses in vulnerable regions—a situation known as uninsurability. With baseline risks continuing to rise, many policyholders view insurance as their primary means of managing these risks.
Insurance aims to spread and diversify risk across different sectors and regions. Historically, innovations in risk management, including insurance, have facilitated the efficient deployment of risk capital, acting as a buffer against economic shocks and supporting growth and stability. However, Riddell said insurance mainly manages risk volatility rather than addressing its causes. It represents the final step in the risk management chain, which also includes mitigation and resilience policies to reduce baseline risks.
In Australia, the rising cost of insurance, a visible consequence of climate change-related events, has drawn significant public scrutiny. Riddell contended that the committee should address the broader systemic issues at play. A balanced approach incorporating risk mitigation, resilience, and alternative risk transfer strategies is essential to make insurance costs more predictable.
Marsh advocates for a comprehensive risk management strategy, including adaptation measures, updated land use planning, building codes, managed retreats, and risk-financing strategies like risk pools. This holistic approach aims to tackle the complex challenges posed by climate risks and ensure a more stable and predictable insurance market in Australia.
