ICA combats rising extreme weather costs with new charter

The Insurance Council of Australia (ICA) has introduced a new General Insurance Industry Charter designed to address the rising challenges posed by extreme weather events.

The charter outlines principles and strategies for disaster preparation, response, and recovery, without dictating financial service delivery or conflicting with existing legal frameworks.

The initiative provides a structured approach to handling large-scale weather-related disasters, aimed at better coordinating industry efforts while maintaining compliance with regulatory requirements.

Rising impact of extreme weather

In the document, the ICA noted that Australia has seen an increase in both the frequency and intensity of extreme weather events, which has affected the cost and availability of insurance, particularly in regions vulnerable to cyclones, floods, and bushfires.

Since the 2019-2020 Black Summer bushfires, insurers have paid out $19 billion in claims related to 20 declared insurance catastrophes. In 2022 alone, flood events contributed to $6.95 billion in insured losses. Other notable disasters, such as the 2021 earthquake in Mansfield, Victoria, led to more than $100 million in claims.

The ICA emphasised that the general insurance sector plays a key role in mitigating the financial fallout of these events while supporting communities in recovery. Extreme weather can disrupt infrastructure and supply chains, necessitating government involvement in recovery efforts and prioritisation of certain regions and critical infrastructure.

Insurance event declarations

While insurers handle claims regardless of formal event declarations, the ICA reiterated that it has the authority to declare an “Insurance Event” for severe situations. Such declarations activate industry-wide extreme weather response plans.

The decision to declare an event is based on a variety of factors, including input from the industry, government, and the broader community.

The ICA recognises three categories of insurance events:

• Significant Event: Localised events with moderate damage and recovery challenges.
• Catastrophe: Large-scale or highly destructive events with extensive property damage and high claim volumes, often requiring collaboration between industries and governments.
• Extraordinary Catastrophe: An event so widespread or severe that it exceeds the usual response capabilities. Although no such event has been declared, the ICA has established guidelines, and the definition is currently under review in the General Insurance Code of Practice.

Key principles for industry response

The charter outlines seven guiding principles for industry response to declared Insurance Events:

• Community needs: Insurers will consider the unique recovery needs of different communities.
• Accessible communication: Clear, up-to-date information on claims and recovery will be made available to customers.
• Scalability: Insurers will assess and expand workforce and supply chain capabilities where necessary.
• On-site engagement: Insurers will deploy teams to impacted areas when possible or provide alternative methods of communication when access is restricted.
• Coordination: Responses will be aligned with state and federal government recovery efforts to improve efficiency.
• Customer input: Customer feedback will be integrated through the ICA’s Consumer Advisory Committee in developing disaster response strategies.
• Collaboration: Insurers will work with governments and community groups to ensure cohesive recovery efforts and advocate for long-term resilience investments.

Industry accountability

The ICA’s Catastrophe Operations Working Group oversees the insurance sector’s disaster response, ensuring alignment with the new charter.

The ICA said it will publish quarterly reports on the progress of disaster responses and provide an annual review of its performance against the charter’s guidelines.