“Politicians are reluctant to address the politically sensitive issue of climate change,” it said. “The three-year election cycle doesn’t support action in the short term with long-term rewards.”
While consumers could expect to see a 4 to 6 per cent rise in premiums as a result of the spike in catastrophic weather related claims, JP Morgan executive director Siddharth Parameswaran said it “could have been worse” and praised the volunteer firefighting efforts for protecting property.
“Household [insurance] is certainly the one we’re most worried about. These bushfires will force insurers to recalibrate,” Mr Parameswaran said.
The report forecast a three-degree warming of the planet would result in a 52 per cent increase in overall natural perils costs, which analysts say would have a severe impact on property insurance classes and overall insurance profitability.
“In a lot of the forecasts around scenarios produced by the IPCC [Intergovernmental Panel on Climate Change], there’s talk of a one-degree warming. At the moment we’re probably on track for far worse than that,” Mr Parameswaran said.
Cyclones, flooding and hailstorm events are the most problematic for insurers, with bushfires historically making up only 13 per cent of natural peril costs.
The report cited predictions from the IPCC that found cyclones were likely to increase in severity and shift southwards in Australia, with the Gold Coast and northern NSW facing the biggest threat of increased costs, followed by Melbourne and Western Sydney.
It also found a warming planet would increase the likelihood of hailstorms in Victoria and New South Wales, all of which would have a “exponential impact” on insurance companies.
“For every extra degree [of global warming], it’s not a linear relationship. It’s an exponential relationship,” Mr Parameswaran said.
Insurance companies have sought to protect themselves against climate change by boosting their reinsurance cover, but Mr Parameswaran said the aggregate cover will “rise quite sharply” off the back of more frequent catastrophic weather events, having a flow on effect on consumers.
“When the output costs rise for insurers, they will have to pass some of that on to the consumer,” he said.
The authors of the report said the insurance industry would continue to lobby the government to adopt more measures to help the country adapt to climate change, including a push for tougher building codes to promote the use of disaster-resistant materials and construction bans in hazard-prone areas.
Charlotte is a reporter for The Age.