A new indicator on the frequency of extreme climatic events indicates rising insurance premiums. (Delivery: Scott Barker)
Owners and owners of residential properties will probably have to pay higher insurance premiums after the new actuarial index warned of the growing financial risk associated with extreme weather events.
- The climate index should be updated every season
- Developed with the participation of regulators and scientists dealing with natural hazards using national data
- The potential loss from coastal erosion has been estimated at USD 88 billion, excluding the value of the land
The Australian Actuaries Climate Index tracks risk factors such as elevated sea levels, drought, bush fires, cyclones, floods and extreme temperatures that are more common as growing evidence of climate change.
The index, developed by the leading actuary and head of Finity Consulting, Tim Andrew, warns that the frequency of extreme conditions was higher in autumn this year than historical extremes in 1981-2010.
"It is safe to say that this is a completely new field for everyone and you can imagine that insurers are particularly worried that they have to collect the appropriate premiums for the risks they incur" – said Andrew in the AB ABC program.
"The index clearly shows that there is more frequent occurrence of extreme events, and it can be expected that many people in regions threatened by fires and vulnerable to floods will have to face some increases in premiums.
"One of the challenges for us is to make sure that we create properties in the right places to make sure we minimize the impact in the future."
The Australian prudential regulator (APRA), which oversees banks and insurers, warned last year that the risks associated with climate change are "predictable, relevant and feasible".
APRA executive director Geoff Summerhayes said the index is an important step towards an inter-industry standard in terms of revealing the risk of extreme weather events and consequences for business, consumers, developers and governments.
"We believe that this initiative is a positive step towards helping regulators to understand and manage the potential impact of climate risk on their activities," said Lethayes.
The new climate index has been developed to help companies and regulators manage climate risk. (Delivery: Cate White)
Index – which will be updated every quarter and supported by the Office of Meteorology and CSIRO – is based on similar indicators currently used in Canada and the United States.
The executive director of the Actuaries Institute, Elayne Grace, said the index is "the first step" because actuaries are developing more explicit climate risk measurements.
"We hope to use this indicator by linking risk data, such as real estate and health statistics, to understand the relationship between extreme weather conditions and risk, enabling the development of clearer risk indicators," said Grace.
The index increases concerns about future losses due to climate change after the Climate Institute in 2016 warned that potential damage caused by coastal erosion was estimated at USD 88 billion excluding land value.
The index was developed in consultation with regulators and scientists dealing with natural hazards, collecting data collected in the country and grouped together in twelve similar climatic causes.
Tim Andrews wants to stay out of the climate change cynicism policy, but hopes that the move towards greater awareness will not be eclipsed by cynical climate change.
"It is an inevitable risk with these problems, I am often disappointed with politics and I hope this message will not get lost".
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