Australia's increasing prevalence of extreme weather events and natural disasters has presented a range of challenges for the insurance industry. In the past few years, Australia has experienced unprecedented fires and floods, more recently, the fires that continue to rage in Tasmania and the extreme flooding in North Queensland. According to the Chief Executive of the Insurance Council of Australia, Andrew Hall, over 200,000 homes had a 2-5 per cent chance of flooding each year. This is above average for a developed economy.
With such upheaval, insurance premiums for the average Australian are rapidly increasing. Many homeowners in flood and fire-prone areas struggle to afford insurance premiums and find suitable plans. Hall highlighted that only a fraction of companies that offer home insurance have the capital to cover homes in high-risk areas. With some insurers having to rebuild the same property for the third time in five years, the financial strain on company capital is increasingly evident. This creates a real dilemma for insurers who aim to stay competitive but are unable to deliver competitive pricing due to such vast expenses.
Opposition leader Peter Dutton has threatened to intervene to prevent Australians from being “ripped off”, however, Hall claims this would not effectively tackle the problem. He instead claims that the cost needs to be spread “across the community more broadly” to normalise insurance for those in high-risk zones. He also highlights the importance of investing in resilience and risk reduction.
As these natural disasters become more frequent and severe, the demand for insurance services escalates, leading to several key employment trends. This includes an increased demand for Claims Professionals, Risk Assessment and Underwriting roles as well as growth in disaster response and recovery services. Climate risk management is becoming a growing priority to mitigate the impact of natural disasters and create new job opportunities. However, higher premiums can also result in customer withdrawal, impacting sales and, in turn, a company's ability to maintain employment levels.
Thus, while the current floods and fires in Australia are likely to drive growth in certain sectors of the insurance industry, particularly those related to claims processing and risk management, the accompanying challenges may also reshape employment patterns within the sector.
As these devastating weather events continue in the coming years, it will be interesting to see how the insurance industry manages this threat.
