Insurers Urged to Address 'Climate-Blind' Coverage

1

The assessment reveals that discrepancies arise from comparing actual insured structures against those present on the ground, often resulting in underinsurance. Current methodologies rely on broad assumptions, with risk assessments often limited to postcodes or local government areas, ignoring the nuanced realities of climate events that do not respect these boundaries. As Australia faces more severe floods, fires, droughts, and heatwaves, insurers' inability to adjust methods and data collection poses a critical risk.

The report draws attention to particularly vulnerable sectors like agriculture and regional communities, where economic impacts are significant. Under moderate emission scenarios, climate-related costs could surpass $40 billion annually. Rural areas, heavily dependent on agriculture, are already experiencing increased premiums, coverage withdrawal, and challenges in obtaining insurance for essential assets.

The limitations of broad-risk analysis become evident as insurance models struggle to reflect the actual lived experiences and dynamic risks in regional areas. "Climate-blind insurance" policies, based on outdated assumptions and lack of detailed data, distort risk understanding and complicate management and mitigation efforts.

However, advancements in geospatial technology and data analytics are paving the way for a more precise understanding of risk exposure. High-resolution tools enable insurers to assess exposure more proactively and specifically, mirroring everyday technologies like geocoding used for navigation and logistics. This precision allows insurers to bridge the gap between on-paper coverage and real-world risk.

With improved insurance visibility and tailored policy-making, it becomes possible to align incentives, ensuring that insurance pricing rewards climate-smart and adaptive practices rather than merely penalising exposure. This shift towards asset-specific, risk-based pricing is changing the landscape of rural insurance, aiming to keep regional communities protected and economically viable.

The industry is entering a pivotal phase where alignment and urgency are critical. Accelerating the transition to this smarter underwriting approach requires a collaborative effort from insurers, governments, and data providers to integrate precise geospatial insights into policy administration and investment. As farmland remains a largely uncharted territory within Australia's financial frameworks, closing this data gap is essential for accurately pricing risk and building resilience.

The National Climate Risk Assessment is an essential starting point, emphasising the need for action. Moving from insight to effective application is crucial to transforming the insurance sector's approach to climate risk, ensuring that the tools available match the reality of Australia's changing climate.

Published:Wednesday, 1st Oct 2025
Source: Paige Estritori

Share this news item:

Insurance News

Clear

Insurance Industry Calls for Liability Law Reforms as Costs Skyrocket for Entertainment Sectors

16 Oct 2025: Paige Estritori

The Insurance Council of Australia (ICA) is advocating for comprehensive reforms in liability laws to tackle rising insurance premiums, particularly impacting sectors such as live music venues, festivals, caravan parks, and amusement venues. The call comes with the release of a white paper highlighting that outdated state-based civil liability laws, untouched for nearly 25 years, are inflating costs significantly. - read more

Surge in Profits for Australian Insurers Amid Rising Premiums

15 Oct 2025: Paige Estritori

In 2024, Australia's insurance industry reported a collective after-tax profit of $6.1 billion, a significant increase from the five-year average of $2 billion. This surge is attributed to substantial premium hikes and a relatively quiet year for natural disasters. - read more

Rising Insurance Costs Challenge Australian Businesses Amid Crime Surge

15 Oct 2025: Paige Estritori

Australian businesses are confronting escalating insurance premiums, driven by a surge in break-ins and thefts. This trend is placing additional financial strain on business owners already navigating a complex economic environment. - read more

Allianz Australia Penalised for Misleading Insurance Practices

15 Oct 2025: Paige Estritori

In a significant regulatory development, Allianz Australia and its subsidiary, AWP Australia, have been fined $16.8 million for making false and misleading statements. This penalty underscores the critical importance of transparency and honesty in the insurance industry. - read more

Allianz Australia Completes Acquisition of RAA Insurance

15 Oct 2025: Paige Estritori

Allianz Australia has successfully completed the acquisition of RAA Insurance for $642 million, marking a significant expansion of its operations in South Australia. This strategic move is set to enhance Allianz's market presence and diversify its service offerings in the region. - read more

Click for more Insurance News