How is climate change impacting insurance?

How is climate change impacting insurance?

28 July 2022

Whatever your viewpoint on climate change, we do know that the severity and frequency of climatic events has increased in recent years.

Since records began, the frequency, duration and intensity of heatwaves have increased over large parts of Australia, with trends accelerating since 1970. The Australian Academy of Science states that weather extremes will also increase – so droughts and flooding rains will become more extreme in the future.

Insurers around the world are addressing how they can respond to climate change. They aim to be a part of the answer to reducing greenhouse gas emissions by deciding which businesses to insure and invest in, as well as by working on strategies to support businesses that are impacted by increasingly severe weather events.

Here are a few trends.

Insurers’ environmental commitment

Today’s investors are increasingly concerned about companies meeting global emissions targets. The International Financial Reporting Standards Foundation (IFRS) created the International Sustainability Standards Board in November 2021. Having standardised reporting allows businesses to be compared internationally based on their environmental performance and their future emissions commitments.

This type of reporting allows institutional investors and large insurers to make significant policy changes. One example is Sompo, one of the top three Japanese non-life insurers, who became the first Japanese insurer to rule out insurance and investment in coal companies. Other international insurers have made, or are working towards, similar changes.
Insurers are moving away from investing in and insuring high emission industries. How quickly they will do this is of course, unknown.

Keeping insurance affordable and accessible

The Insurance Council of Australia (ICA), as the representative body for the general insurance industry of Australia, has taken a different approach.
They have set the following mandate for their Climate Change Action Committee:

“We are working alongside the community, governments and other stakeholders to help ensure insurance remains affordable and accessible through physical adaptation measures and increased community resilience.”

They have three partnerships with specific goals.

  1. Green Building Council of Australia Future Homes which aims to promote and develop healthy, resilient, and net zero energy homes.
  2. Minderoo Fire and Flood Mission with the mission to:
  • Reduce the scale and impact of bushfires by being able to extinguish dangerous fires within an hour by 2025.
  • Lift Australia’s 50 most vulnerable communities to be on par with Australia’s 50 most resilient communities by helping communities to access the support and resources to mitigate their disaster risk and bounce back stronger by 2025.
  • Halve hazard exposure in Australia’s 50 most fire and flood prone regions by 2025.
  1. Queensland Fire and Emergency Services (QFES) – Severe Wind Hazard Assessment Queensland (SWAQ) project aims to develop information that will inform future strategies to manage and reduce severe wind risk in Queensland.

The ICA and its members have been signatories to the United Nations Principles for Sustainable Insurance since 2012.

Climate change and your business

While many of these changes will not have an immediate and direct impact on your business, they do demonstrate that change is happening in the insurance sector. We may see that certain risks will be harder to place, that insurers will demand more preventative action from businesses to address climate change risks, and we could even see insurers asking for more information about emissions and environmental impacts. At

Maybe it’s something to start considering, if you haven’t already done so, when you’re conducting your next strategic planning session.

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