Insurance and Climate Change: The Implications for Australia with Respect to Natural Hazards

Abstract

The reinsurance sector and the property sector of the insurance industry are already vulnerable to variability in the frequency and severity of extreme weather events (Dlugolecki et al. 1996), and are increasingly concerned about the financial implications of the effect of climate change on future trends in natural disaster losses. Internationally and in Australia, the insurance industry could respond to the threat of climate change reactively; or it could respond in a more pro-active manner, encouraging adaptation to climate change at the individual and governmental levels. The issues surrounding the potential impacts of climate change on the property insurance industry and the consequent implications are reviewed. A generalised economic framework is developed to establish the position and role of insurance in disaster relief in Australia. Analysis of four case studies of floods and bushfires in south and east Australia reveal the absolute and relative damage costs borne by insurance, government and charity, and the residual costs borne by the affected parties.