It’s often said there are only two certainties in life – death and taxes. One might argue that not even the latter of those is a certainty for some. It was recently reported that 1200 Australian major companies – including Qantas, News Corp and AGL – paid no tax in 2022-23. Perhaps the old saying popularised by Benjamin Franklin needs updating. A more fitting one these days might be death and regular increases in your insurance premiums.
Whether it be health insurance, car insurance or house insurance, apparently nothing can stop their premiums from rising seemingly exponentially. With each renewal notice comes another increase that feels like it’s well above the CPI. And it probably is. But, as Australians above a certain age quoting the late Professor Julius Sumner Miller might ask: “Why is it so?”
There are, of course, many factors contributing to increasing insurance premiums, but there is one overriding standout – climate change.
Climate change and your insurance premiums – drawing a long bow?
Even if one were to ignore the overwhelming evidence of humanity’s contribution to global warming, climate change is undeniable. And those affected by it – from individuals to corporate behemoths – will naturally act accordingly to ensure their survival.
The starkest example of this effect I can think of is one of the world’s largest insurers, Munich Re. The ‘re’ in the company’s name is short for ‘reinsurance’. Munich Re is in fact a company that provides insurance to insurers. And if the insurance companies they’re reinsuring start having to pay out more in claims, it hits their bottom line. To protect it , they’ll charge the insurers more. The insurers, in turn, will increase insurance premiums.
This well-established business phenomenon is often cited by renowned science presenter and author Dr Karl Kruszelnicki. ‘Dr Karl’, as he is commonly referred to, often appends his references to this with: “Nothing personal, it’s just business.”
And for companies driven by profit, that is indeed all it is – the nature of business. While this is a concept most are familiar with, what might surprise some is the length of time Munich Re has been incorporating climate change into its profit and loss equations – more than 50 years!
The company identified changing climate patterns as affecting its payout amounts back in 1973. Accordingly, it began adjusting its chargers to insurers, who passed on the cost increase through increased insurance premiums.
Since the 1980s, payouts for weather-related catastrophes have doubled each decade. A 2014 article identified the annual worldwide figure as about $50 billion. Another major reinsurer – Swiss Re – quoted an insurance loss of $US108 billion worldwide in 2023, as an increasingly bigger factor.
Australia is not immune
A newly published report from think tank The Australia Institute reveals that those of us down under are also affected. The report states that major floods in eastern Australia pushed insured losses in 2022 to a record $7 billion, almost double previous records.
Of course Australia has a history of major floods, but climate change is increasing the risk of a higher frequency. With that increased risk comes increased insurance premiums. Between 2022 and 2023, the average home insurance premium in Australia rose by 14 per cent, the report stated. That was the biggest rise in a decade.
The report showed insured losses every year since 2013 have exceeded the combined losses in the period 2000 to 2004. And modelling from The McKell Institute published in the report shows the figures are likely to keep rising. It estimated that the direct cost of natural disasters in Australia could reach $35 billion per year by mid-century. That’s an average of more than $2500 per household per year.
The future of insurance premiums
Such costs will be disproportionately borne by Australians in tropical northern regions, where floods and cyclones are far more frequent. The report cites several examples. In northern Western Australia, for instance, home and contents insurance costs on average $4395 per year. That’s more than double the $1779 per year cost for Australians in the southern two-thirds of the country.
Home and contents insurance premiums are the obvious ‘victims’ of more frequent climate-driven natural disasters. However, other insurance categories will not necessarily be immune. Extreme weather events have a direct impact on the health of vulnerable people, for example. And an increase in flood and hail damage to vehicles will almost certainly drive up car insurance premiums.
All of this is not to say that insurance companies don’t slug customers with excessive increases. But the next time your renewal notice shows a hefty premium increase, remember that climate change is a contributing factor.
Have your insurance premiums jumped in recent years? Has your insurer explained why? Let us know via the comments section below.
Also read: The worst home insurance policies on the market
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