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Climate change may raise the cost of life insurance: actuaries

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Increased deaths and lower investment returns from climate change impacts could significantly increase the cost of life insurance, a new Actuaries Institute report warns.

It says lapse rates could increase as consumers are forced to drop their life cover because of financial constraints following natural disasters. TAL has already decided to waive two months of life premiums for customers affected by the bushfires in Queensland and New South Wales.

Adverse claims experience, lower macro-economic growth leading to lower investment returns, and lower sales of new business could also be affected, the report says.

Life insurers should extend their focus on customer health to increasing awareness of the risks posed by extreme heat.

For annuity providers, the impact of climate change needs to be considered alongside the impact it may have on investment returns. It could have negative long-term implications for investors who aren’t fully diversified.

The actuaries say average investment returns under a 2-degree warming scenario are negative across all sectors from now until 2050. This would have a significant impact on retirement incomes, and incomes would also be affected through natural disasters and job losses in affected industries. Under-insurance will also lead to an erosion of savings or super contributions.

Life insurers tend to have significant morbidity and mortality risk on their books, but data on how TPD, income protection, and trauma insurance could be affected by climate change is virtually non-existent, the report says. Therefore morbidity could not be measured.