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Cover conundrum: listening to reason when risk changes

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When insurers decline to offer cover for a certain risk in a certain location the reaction from affected residents, and the politicians and media claiming to represent them, is never positive.

Whether it’s in earthquake-prone Wellington, or flood-threatened Townsville, “abandoning communities” is a well-worn phrase with an unpleasant ring to it.

The latest headlines reflect the frustrations of residents in western Sydney’s Waterside Estate (the clue might be in the name there), where Coles Insurance – a subsidiary brand of IAG – has put the brakes on flood cover.

“As part of a general update of flood modelling by IAG across its home insurance products, flood risks for some local areas have been changed,” a spokeswoman told

“In a small number of cases, the updated flood risk profile for a property is such that IAG is no longer able to offer coverage.”

It’s not pleasant news for affected homeowners, but we may have to get used to it – for two very good reasons.

It’s now widely accepted that climate change will lead to more extreme weather events in many parts of Australia.

Of added concern is the fact that cyclones and other weather systems are moving more slowly. When destructive winds and heavy rainfall stall over one location, the potential for damage and severe flooding soars, with what happened in Townsville in February the perfect example.

At the same time, insurers are increasingly using the latest flood data to assess risk at address level.

Put the two together and there will be bad news coming for the most at-risk properties.

But rather than panicking, a more mature response would be to listen to the signals the insurance industry is sending.

Insurance is often described as the “canary in the coalmine”, and rightly so.

It was the industry’s withdrawal of exclusion-free professional indemnity cover for building surveyors and certifiers that finally sparked government action on the building defects crisis.

And so it could be the withdrawal of flood cover in at-risk areas that forces governments to take seriously the need for increased mitigation measures and call a halt to inappropriate development on floodplains.

The insurance canary may also eventually tweet loudly enough that a politically deaf federal government might even be forced to regard more seriously the need to genuinely reduce carbon emissions instead of playing around with sly figures.

Asking insurers to pretend there isn’t a problem cannot be the answer.

That way, bad land-use planning, and a lack of natural disaster mitigation will continue, and the reckoning when it comes could be brutal.

Head of ESG Risk at QBE, Sharanjit Paddam, who also convenes the Actuaries Institute Climate Change Working Group, sums up the situation on LinkedIn.

“As climate change starts to bite and the increased incidence of extreme precipitation starts to change our flood risk, we can expect increasing bad news for consumers…and insurers leaving the market,” he writes.

“On the other hand, if Australia enacts effective plans to mitigate emissions and invest in resilience-building, we can benefit consumers, reduce the load on the government’s balance sheet and ensure a sustainable insurance industry.

“We all win, or we all lose.”

Next time an insurer withdraws cover, those Australians in positions of power and influence should delay rushing to judgment long enough to think about why this has happened – and then act on it.