If you want to know the mundane, annoying reality of climate change, talk to an insurer. They won't paint apocalyptic pictures of wars and famines, or of seas lapping against the 20th-floor windows of skyscrapers. They'll tell you about all the boring but endlessly irritating ways climate change will make life worse. Two words: water damage.
The general insurance industry is taking the financial risks of climate change more seriously than any other industry – with the possible exception of coal miners, for very different reasons – because it's already hitting their bottom lines.
IAG and Suncorp,
two of Australia's biggest insurers, reported falls in half-year profit
in February, and in both cases extreme weather events were a major
factor. Insurance brokerage Steadfast, announcing its own results, predicted an increase in extreme weather events would push insurance premiums up for at least another two years.
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| Local residents in flood water in the suburb of Hermit Park in Townsville. Insurers want properties to be better strengthened against such extreme weather events. Dan Peled |
There are two ways of dealing with this. One is the faltering international effort to reduce greenhouse gas emissions, which would limit warming and avoid the worst outcomes. The other is to prepare communities for the worst.
Insurance companies have generally avoided weighing into the politically-charged emissions debate, focusing instead on building resilient communities. That essentially means flood and storm-proofing properties. Both IAG and Suncorp have teams dedicated to understanding changing weather patterns.
"The first thing is making sure we're doing the right pricing and underwriting, for the short-term profitability of our business," says Mark Leplastrier, IAG's senior manager natural perils. But as increasing numbers of communities become high-risk, he says the natural perils team is asking, "What are the options there to reduce some of that risk?"
"We've
been sponsoring the Cyclone Testing Station since the early 2000s.
Early on they were focusing more on wind loads for instance. But I was
saying we're seeing a lot of damage through our claims caused by
wind-driven water into buildings."
He says claims data provided by
IAG and Suncorp to Cyclone Testing Station – part of James Cook
University – helped them understand exactly what was causing the damage,
and has resulted in changes to the National Construction Code. |
| Cleaning up after flooding in Townsville in February. Climate change is creating a high level of uncertainty for insurers. Dan Peled |
Leplastrier says climate change introduces a high level of uncertainty. "Are we building enough buffer there to be able to absorb enough of that uncertainty? That's the kind of question we need to be more and more involved with," he says. One key challenge is getting local authorities to rethink flood danger before they approve new builds. He says where local authorities will only consider the 100-year flood level – that is, the highest flood level in a 100-year period – insurers are considering much longer time scales.
"From an insurance perspective, we will say what does to 200, 500, 1000-year flood look like, what are the depths, and what are the financial consequences?" he says.
'We need action now'
Suncorp chief executive Michael Cameron, following a 44.7 per cent fall in profits in February largely thanks to a freak hail storm in Sydney in December, said the government needs to do two things: first, it needs to force companies to adopt climate change action plans; and second, it needs to invest more in climate change-proofing Australian communities.
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| Suncorp saw a 44.7 per cent fall in profits in February largely thanks to a freak hail storm in Sydney in December. Nick Moir, Supplied |
"Suncorp has also championed flood mitigation in several vulnerable parts of the state," he says. "In 2013, we decided to cease writing new policies in Roma which had been hit with successive floods during that period."
He says this controversial move was "the right one" because it forced a levee protecting the town to be built. As a result Suncorp could reduce premiums, some by up to 90 per cent. Suncorp also advocated for the South Rockhampton Flood Levee.
Insurance companies are not acting out of the goodness of their hearts, but for straightforward business reasons. If communities are open to major damage to increasingly brutal weather events, then insurance companies will simply not be able to bear the risk – which will leave everyone worse off.
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| Optus chairman Paul O'Sullivan says the telco is adapting its infrastructure to climate change forecasts. Christopher Pearce |
"That means communities, industries and governments embedding resilience in more decisions, more planning and more business practices. We don't want this cultural shift to be borne out of tragedy. We are a smart, innovative and bold nation with enormous expertise and know-how when it comes to disasters. We can build more cyclone, flood and fire resilient communities but we need action now," he says.
Enter telcos and banks
Climate change, believe it or not, won't only affect insurers. The Australian Business Roundtable for Disaster Resilience and Safer Communities, which promotes weather-proofing communities, includes the CEOs of insurers IAG and Munich Re. But it also has representatives from the Red Cross, Westpac, Investa Property Group, and Optus.
Optus chairman Paul O'Sullivan says it's natural for a telecommunications company to be part of the push because, as a vital infrastructure owner, they are vulnerable to extreme weather events and, when extreme events do occur, even more important to customers than usual.
He says since 2001 Optus has spent between $1 and $2 billion a year on its infrastructure. "That gives us an authenticity and plausibility when we talk about these matters," he says.
The goal of the roundtable, he says, is to "assist government to make this a priority". He lists three key areas: including resilience planning in all future infrastructure; improving resilience when replacing or upgrading existing infrastructure; and generally improving awareness. While he says governments are "very receptive", money is an issue.
"I do think we're winning the argument, but it takes time. I think the biggest constraint obviously are budgets. So this obviously requires a redirection of some the investment in budget into resilience," he says. A flick through the 2018 federal budget suggests the federal government does not consider the issue a priority.
But like IAG and Suncorp, O'Sullivan says Optus is doing plenty off its own bat, working closely with the CSIRO to prepare for changes in weather patterns.
"We look at the CSIRO model, and what that tells us is there is a significant potential for cyclones to move further south, particularly along the Queensland coast where there is significant population, and where we invest very significantly in mobile coverage and in fixed line infrastructure," he says.
"So what we've been doing along that coastline is upgrading the quality of our mobile base stations and towers to be cyclone strength much further south than we would have done historically. In areas which are open to flood plain, we've been looking to raise the height at which we put equipment, particularly riding equipment or any sensitive electronic equipment, and we've also been doing work on re-mapping the way we deploy electricity generators."
Links
- Steadfast CEO Robert Kelly warns insurance premium rises are coming after weather hits
- State of the Climate 2018
- Australia on track to miss Paris emissions targets by huge margin
- Suncorp calls for climate action as profits slump
- Climate Change's Giant Impact on the Economy
- Analysts: Insurance Can't Offset Risks of Climate Change
- Tackling climate change a 'financial necessity' says top Australian banking regulator
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