The Australian Prudential Regulation Authority (APRA) has provided further details about its insurance Climate Vulnerability Assessment (CVA).
The insurance CVA is designed to examine potential future challenges around insurance affordability as climate risks evolve.
The assessment models different scenarios to explore how physical and transitional risks associated with climate change could influence insurance costs and availability through to 2050.
The initiative involves collaboration with the Insurance Council of Australia (ICA), government entities, and private sector organisations.
APRA said that the scenarios used in the CVA are exploratory and do not serve as predictions or policy directions. Instead, they aim to highlight possible outcomes under varying climate assumptions.
The CVA is an extension of APRA’s 2022 banking Climate Vulnerability Assessment, which evaluated the potential effects of climate change on credit risk within the banking sector. This insurance-focused project, launched in July 2023, will build on that work.
APRA expects insurers to submit their findings in early 2025, with a public report to follow later that year.
APRA member Suzanne Smith said that the initiative is part of the regulator’s broader goal of fostering resilience in the insurance sector.
“The findings of the insurance CVA will help to improve the national understanding of risks posed by climate change to general insurance and the impact on affordability and the protection gap in Australia,” she said.
She added that this work supports the sector’s ability to meet the needs of Australians in an uncertain climate future.
This effort aligns with the Australian insurance industry bodies’ support for recommendations in a Senate Select Committee report addressing rising insurance costs and reduced coverage availability linked to climate change.
The ICA and the National Insurance Brokers Association (NIBA) welcomed the report, which examined the economic impact of worsening natural disasters and proposed strategies to manage affordability and access issues.
The ICA pointed to several key measures highlighted in the senate report, including:
The ICA also referred to findings in its “Insurance Catastrophe Resilience Report 2023-24,” which recorded $2.19 billion in insured losses from four major natural disasters last year. It emphasised the importance of its “Climate Change Roadmap,” which outlined actions for insurers to reduce emissions across operations, underwriting, and supply chains.
NIBA also welcomed the senate report’s emphasis on transparency and risk reduction. It expressed its commitment to working with industry partners and policymakers to implement recommendations that could strengthen community preparedness while addressing affordability pressures.