Global Insurance Law Connect has highlighted encouraging developments in the Australian insurance market’s response to growing natural hazard risks in its inaugural Property Catastrophe and Climate Governance Report. 

The report highlights efforts to clarify policy language, incentives for risk mitigation, and increased incorporation of co-insurance and parametric solutions as essential tools for enabling quicker recoveries from major natural catastrophes.  

Notably, the report highlights the growing adoption of parametric insurance as a significant innovation to address underinsurance. 

“In Australia, there is a growing market for parametric insurance, driven by the increase in extreme weather events, a widening protection gap in traditional insurance, and the faster payouts that parametric solutions can offer,” it said. “A number of innovative products including parametric components have recently entered the market, underwritten by specialist MGAs.”  

The report also recognises catastrophe risk pools and technology-driven risk assessment as helpful drivers towards closing protection and insurance gaps, noting faster claims settlements and insurance options for events that are not typically covered.  

It says the country has been driven to adopt such innovative solutions to address escalating costs driven by worsening weather events and changing land use.  

The federal government’s Hazard Insurance Partnership is also highlighted as a key measure needed to improve mitigation.  

GILC chair Gillian Davidson says the report emphasises the critical role all stakeholders will have to play to ensure communities must play to ensure communities can withstand and recover from natural disasters. 

“As climate-driven perils intensify, insurers, governments and property owners are all grappling with the affordability and availability of insurance, particularly in high-risk areas,” Ms Davidson said.   

“A great deal depends on the broader government response to climate change, and the extent to which government policy drives better risk mitigation practices.

“In the absence of these commitments, the financial burden on the insurance market will inevitably impact the cost of claims and the availability of insurance coverage in certain geographical areas.”  

The report relies on the findings of 23 member firms from across the globe, with Sparke Helmore operating as the sole Australian representative in the collective.

Click here to read the report.