As we enter the peak season for severe weather events in Australia, the Bureau of Meteorology (BOM) has announced a long-range forecast of weather events, including heatwaves, bushfires, cyclones and flooding. With the impacts of climate change becoming more significant, the insurance industry is having to evolve, becoming more adaptable and seeking ways to manage nature-related risks.
We discuss how weather events are impacting insurance, the evolving insurance solutions, and steps businesses can take to mitigate risk.
Weather events and the impacts on insurance
The escalation in severe weather events in recent years has had profound implications on the insurance landscape. As these events become more frequent and severe, the influx of insurance claims submitted to insurers has risen significantly. The consequence of this surge in risk exposure is a notable impact on insurance pricing, affecting not only businesses in high-risk areas but also those situated in traditionally low-risk regions. Many have observed a gradual but relentless climb in their insurance premiums. In more distressing scenarios, businesses are dealing with the daunting challenge of securing insurance coverage altogether.
The increase in natural events has prompted insurers to take a more cautious approach to risk management. In response to the growing threat, insurance providers have been compelled to implement several measures aimed at safeguarding their financial stability and ability to provide coverage. These actions include policy restrictions, a reduction in coverage options, an uptick in premium rates, and, in some cases, a reluctance to offer certain policies altogether.
Insurers are increasingly taking on the role of educators and advocates, not just as financial safeguards. They recognise the value of proactive risk mitigation, and as a result, they are actively engaging with policyholders and the wider public to raise awareness about weather-related risks and how to mitigate them. The Insurance Council of Australia (ICA) released the Climate Change roadmap, ‘Towards Net Zero and a Resilient Future’, in November 2022. Their goal is better risk mitigation that preserves Australia’s built and natural environments in the face of climate change.
The evolving dynamics of severe weather events are reshaping the insurance industry, prompting both businesses and insurers to adapt to a new reality of heightened risk and its profound impacts on the cost and availability of insurance coverage. As we continue to deal with the consequences of climate change, this challenge remains a central issue for all stakeholders in the insurance ecosystem.
Evolving parametric insurance solutions
Parametric insurance solutions are a contemporary and adaptive approach to risk management and insurance. Unlike traditional insurance policies that rely on assessing and compensating for actual losses, parametric insurance is designed to provide swift and transparent payouts based on predefined parameters or triggers. These solutions are continually evolving to meet the changing needs of policyholders and to address various risks more effectively.
The triggers or parameters that activate the coverage can be based on objective and readily available data, such as wind speed, temperature, rainfall, seismic activity, river heights, BOM Categorised Cyclone Path, among others. The use of concrete data reduces disputes and simplifies the claims process.
One of the central features of parametric insurance is its ability to provide quick payouts. When a triggering event occurs and meets the predefined criteria, policyholders receive compensation without the need for lengthy claims assessment processes. This can be particularly valuable in the case of natural disasters, such as bushfires or floods, where immediate financial relief is crucial.
Steps accommodation businesses can take to reduce risk
While insurance can reduce the financial burden of dealing with a natural disaster, the stress and heartache experienced by those impacted are still very real. In addition to reducing the financial risk with insurance, there are steps businesses can take to reduce their risk of damage and injury if an unfortunate weather event were to arise.
Evacuation plan
It is essential to have a clear evacuation plan that staff and guests are aware of in case of a natural disaster. Depending on your location, you may like to include instructions for specific weather events, as an evacuation plan for a bushfire compared to a cyclone will likely be different.
Firefighting equipment
To ensure safety and minimise damage, various firefighting equipment can be installed. This could include sprinklers, smoke alarms, a fire suppression system or even firefighting tanks.
Clean up and reinforce buildings
Ensuring a property is free from debris and overgrown vegetation can help reduce the risk of damage from a bushfire, cyclone or flood. It’s also a good idea to make sure there is a clear path onto and around the property, this helps in the event of evacuation or if emergency services need to access the property.
Reinforcing windows, doors, roofs, and any seals can help keep water out of buildings and may help in a cyclone or flood.
Maintenance
Maintaining equipment and infrastructure can help reduce the risk of injury or damage in severe weather events. For example, an ageing roof could become a major hazard during a cyclone.
It’s important to remember to maintain the property itself, and any safety equipment on the property. There’s no point having a fire suppressant system if it’s going to fail during a fire.
In conclusion, insurers are actively working to manage the increasing risks associated with floods, cyclones, and bushfires. This involves a combination of data-driven risk assessment, pricing adjustments, resilience programs, and collaboration with various stakeholders, including policyholders, governments, and the reinsurance industry. These efforts aim to enhance the industry’s ability to provide effective coverage and support to those affected by natural disasters while adapting to the evolving risk landscape.
The insurance industry is evolving in response to the complex challenges posed by severe weather events. Through data-driven risk assessment, recalibrated pricing structures, and a heightened focus on policyholder risk mitigation, this multifaceted approach is integral to delivering robust coverage and a safety net for those faced with the repercussions of natural disasters.
As we navigate the ongoing impacts of climate change, the insurance sector is an essential ally in safeguarding businesses and their customers. If you’d like more information or a risk review, please do not hesitate to contact us.
