Insurance flagged for next climate risk assessment

7 November 2022

Financial regulators are turning their attention to an assessment of insurance climate vulnerability impacts following the completion of a project examining banking.

Australian Prudential Regulation Authority (APRA) Insurance Division Executive Director Sean Carmody says a final report on the Climate Vulnerability Assessment conducted with the five major banks is set to be published later this month and regulators have been looking toward the next area of review.

Mr Carmody says insurance is being considered and, although ideas are at an early stage, the focus would likely be more around long-term access and affordability rather than direct financial risks from a prudential perspective.

“One of the things I think is really important as we think about these challenges and bring all the different stakeholders together that need to lean into these affordability challenges, is to actually look beyond where those pressure points are today,” he said.

Insurers have the ability to ability to reprice policies over a short timeframe and the issues are different to banking, he told the Insurance Council of Australia annual conference.

“Insurers can be quite responsive to those emerging changes, but what does it mean in terms of that picture of affordability down the track,” he said. “So that’s an area that we’re thinking quite strongly about.”

Mr Carmody says the bank assessment showed the issues are also important from a lending point of view given financiers want to know that physical assets can be appropriately insured.

“One of the things that banks are asking us in that exercise is ‘well, what should we assume about access to insurance 20 years down the track,’,” he said. “It became fairly evident that that’s a really important question, not just for the insurers themselves, but for the lenders to understand.”