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Insurers ‘must act’ on climate change

Australian general insurers must accept the realities of climate change and increase pressure on governments over mitigation, Taylor Fry Senior Actuary Sharanjit Paddam says.

In a paper appended to the JP Morgan/Taylor Fry General Insurance Barometer, Mr Paddam refers to Bank of England Governor Mark Carney’s groundbreaking speech on the issue in September, and warns Australia is far from immune to the issues raised.

Mr Paddam says there is evidence losses from natural catastrophes are rising, and Australia is the most exposed developed nation to such perils.

The nation is also heavily reliant on coal, and insurers’ exposure to the fossil fuel industry leaves them vulnerable to a sudden reduction in asset values.

The insurance industry must be more proactive about climate change, because walking away from increasing risks is not a sound long-term solution.

“Insurers need to engage governments and policymakers into adapting for climate change – through better protections from flood, stronger building standards to reduce cyclone losses and better planning controls to reduce development in high-risk areas,” Mr Paddam says.

“Without these changes, insurers will see a loss of revenue and an increased exposure to losses.”

On the plus side, the transition to a low-carbon economy offers insurers substantial new business opportunities.

Agile insurers that react quickly are likely to thrive in the “new reality” of climate change, Mr Paddam says.

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