Double trouble
Research shows how extreme weather costs are soaring
Insurers have paid an average $4.5 billion a year in extreme weather claims over the past five years – more than double the 30-year average of $2.1 billion. The data analysis has been released as part of the Insurance Council of Australia’s annual Insurance Catastrophe Resilience Report.
The rise in payouts was largely driven by flood claims. “The trend clearly shows that the cost of all perils except cyclone are growing, and that flood is growing the fastest and is the most significant,” the report says. “The average annual cost of flood alone jumped from $620 million over the 30-year average to $2.2 billion in the past five years.”
The report says expanding development and urbanisation are the “main factors” driving up losses, “even before climate change impacts are fully felt”.
The study also shows that the impact of extreme weather on the Australian economy has more than tripled over the past three decades. Insured losses from declared catastrophes have grown from 0.2% of GDP from 1995 to 2000, to 0.7% for the past five years, “meaning extreme weather losses are consuming more and more of our economic resources”.
And while total premium collected by insurers has grown from $50 billion in 2012 to $86 billion in 2023, insurer profits have remained largely flat over that period.
In 2023-24, insurers incurred $2.19 billion in claims from declared extreme weather events – the same amount as the previous 12 months.
But the number of claims increased to 157,000 from 66,000, “showing that while the average claim from recent weather events was lower, the impact was more widespread”.
The most expensive extreme weather event of 2023-24 was the Christmas storms that hit the Gold Coast hinterland and parts of New South Wales and Victoria, accounting for $1.33 billion in claims.
The event with the greatest impact on individual customers was ex-Tropical Cyclone Jasper, which crossed Far North Queensland in mid-December. The average claim was $36,000, almost three times the average claim for the Christmas storms.
The report also outlines policy solutions required to improve resilience to extreme weather. These include improved land use planning, stricter building codes and continued investment in measures such as flood levees and home strengthening.
“Flood is Australia’s most costly natural peril, and it’s estimated that around 1.2 million properties face some level of flood risk,” ICA chief executive Andrew Hall says.
“Around 230,000 of these have a one in 20 chance of a flooding each year, with a further 420,000 properties facing a one-in-50 or one-in-100 annual chance of flooding, odds that translate into higher premiums, which can lead to a growing protection gap.”
Mr Hall says policymakers are beginning to “think more seriously about this issue” but “we need to redouble our efforts if we are to manage the impact of worsening extreme weather amid a changing climate”.
