Extreme weather set to see Australia's insurance red zones expand

Updated

For most of us, the problem is in someone else's backyard, in some other neighbourhood.

But for an increasing number of Australians, it's right on their doorsteps. Many just don't know it … yet.

Roughly 850,000 homes — nearly one in 10 — could be "uninsurable" within a few generations unless there are fundamental changes to where and how properties are built, a leading climate analyst says.

The warning comes as separate data, published by the Actuaries Institute, reveals the frequency of extreme weather in the country's worst-affected regions has doubled compared to the long-term average.

Karl Sullivan, general manager of policy risk and disaster for the Insurance Council of Australia said the data will "help the underwriting side of the industry have a better, sharper discussion about what that future might look like."

But the insurance industry is already on the brink of "dangerous market failure", according to Karl Mallon, director of science and systems at climate analytics company Climate Risk.

"If the industry doesn't step up, we'll all pay — both as taxpayers picking up the bill for the recovery … or because of the impact on our communities and our economies," says Dr Mallon.

"This is a cost that is avoidable and we shouldn't be walking into this but we are. We absolutely are."

A spotlight on the extremes

The Australian Actuaries Climate Index tracks changes in the frequency and duration of six types of extreme weather — high temperatures, low temperatures, heavy rain, drought, strong wind and changes in sea level — for 12 regions of Australia.

Beginning in 1981, it compares each season to the long-term average (1981-2010) for that season, meaning summer is compared to previous summers, autumn to previous autumns, and so forth.

The index is intended to help businesses such as banks, investment firms and insurers assess the change in risk. It adopted a shorter timeframe following advice from Bureau of Meteorology and CSIRO scientists.

"We've tried to take a magnifying glass to the extremes because … that's what we think will have the biggest impact on people, society and businesses," says Actuaries Institute CEO Elayne Grace.

She said it emphasises a regional view because that's where the harshest impacts are felt.

Wet

Tropics East Coast

(North) Monsoonal North Rangelands (North) Rangelands (South) Southern and South Western Flatlands (West) Southern and South Western Flatlands (East) East Coast

(South) Southern

Slopes (Vic) Southern

Slopes (Tas) Central

Slopes Murray Basin

"We need global action from governments and business [but] the truth is the impacts are often at the local level, which means you need to have a very ground-up understanding of risk and managing risk," she says.

The charts below show the data for Australia as a whole.

Each of the grey bars represents a season and year. The coloured line shows the five-year moving average.

Positive values (in red) show when extremes were more common than usual; negative values (in blue) show when extremes were less common. The exception is extreme cold, which works the opposite way: fewer cold days are shown as an increase (in red) because this is seen as more risky.

This is because it’s linked to an increase in diseases, pests and insects that are more likely to survive in warmer temperatures.

Sea levels are rising and extreme temperatures are becoming more common across Australia.

(For the statistically-inclined, the scores represents units of the standard deviation and show the change compared to the usual variability.)

"There's clear evidence that we're getting more extreme maximum temperatures, fewer extreme minimum temperatures — which is a bad thing — and more extreme sea level rises," says Tim Andrews, head of Finity Consulting, which compiled the index for the Actuaries Institute.

Australia-wide, extreme hot days are now 80 per cent more common and extreme cold days are 74 per cent less common than the long-term average. The maximum sea level has risen by 5.9 centimetres.

On the other hand, wind and rain show no clear trend up or down, with drought and heavy rain continuing to follow a cyclical pattern, Mr Andrews says.

He points out, however, that other data suggests the frequency of rainfall events "even more extreme than what we're modelling" may be on the rise.

High-risk zones are expanding

The frequency of climate extremes is rising much faster in some regions than others.

For example, the frequency of extreme hot days has increased 177 per cent in the Central Slopes of the eastern states but only 34 per cent in Tasmania's Southern Slopes.

Similarly, sea levels have risen by 11.3 centimetres in the East Coast (North) region of Queensland, compared with 2.1 centimetres in the Southern and South Western Flatlands (along Western Australia's southern coastline).

Wind also varies dramatically between regions, with strong wind days now 65 per cent more common in the Central Slopes but 55 per cent less common in the Southern and South Western Flatlands.

Frequency of extreme weather, by region Combined* East Coast (North) 1981 2018 3 2 1 0 -1 East Coast (South) Rangelands (North) Central Slopes Monsoonal North Southern Slopes (Tas) Wet Tropics Southern Slopes (Vic) S/SW Flatlands (East) Murray Basin S/SW Flatlands (West) Rangelands (South)

Hot days East Coast (North) 1981 2018 4 2 0 East Coast (South) Rangelands (North) Central Slopes Monsoonal North Southern Slopes (Tas) Wet Tropics Southern Slopes (Vic) S/SW Flatlands (East) Murray Basin S/SW Flatlands (West) Rangelands (South)

Cold days East Coast (North) 1981 2018 0 -1 -2 East Coast (South) Rangelands (North) Central Slopes Monsoonal North Southern Slopes (Tas) Wet Tropics Southern Slopes (Vic) S/SW Flatlands (East) Murray Basin S/SW Flatlands (West) Rangelands (South)

Sea level East Coast (North) 1981 2018 4 2 0 -2 East Coast (South) Rangelands (North) Monsoonal North Southern Slopes (Tas) Southern Slopes (Vic) S/SW Flatlands (East) S/SW Flatlands (West)

Drought East Coast (North) 1981 2018 2 1 0 -1 East Coast (South) Rangelands (North) Central Slopes Monsoonal North Southern Slopes (Tas) Wet Tropics Southern Slopes (Vic) S/SW Flatlands (East) Murray Basin S/SW Flatlands (West) Rangelands (South)

Rain East Coast (North) 1981 2018 4 3 2 1 0 East Coast (South) Rangelands (North) Central Slopes Monsoonal North Southern Slopes (Tas) Wet Tropics Southern Slopes (Vic) S/SW Flatlands (East) Murray Basin S/SW Flatlands (West) Rangelands (South)

Wind East Coast (North) 1981 2018 6 4 2 0 East Coast (South) Rangelands (North) Central Slopes Monsoonal North Southern Slopes (Tas) Wet Tropics Southern Slopes (Vic) S/SW Flatlands (East) Murray Basin S/SW Flatlands (West) Rangelands (South) *Combines hot days, sea level and rainfall

Such figures are critical for understanding where future risk zones will expand, Dr Mallon says.

Take flood risk in Townsville, for instance. Insurers typically use the one-in-100-year flood zone to set the boundaries of high risk, Dr Mallon says. But by the end of the century, the risk of a one-in-100-year flood will have increased by about 130 per cent, according to Climate Risk's own estimates.

"If you build a house now, by the end of its operational life that risk will have significantly more than doubled … So what used to be the one-in-200-year flood zone is the new one-in-100-year zone," Dr Mallon says.

"These are the properties that will become uninsurable."

Climate Risk has analysed how the expansion of these high-risk zones will impact the number of "uninsurable" homes in Australia.

Its provisional figures estimate that by 2100 the number of "uninsurable" homes — defined as those where the annual premium would exceed one per cent of the property value — will swell to upwards of 850,000 or nearly 10 per cent of residential properties. This is about 220,000 more than in 2018.

The problem affects far more homes than most people realise because planning laws haven't kept pace with climate change, Dr Mallon says. We are still building, buying and selling "the wrong kinds of buildings in the wrong kinds of places … A lot of people are sleepwalking into [this]".

How common is extreme weather in your region?

The interactive tool (below) shows how the frequency of different weather extremes has changed for your region. It's based on a chart like the one above.

The long-term average is represented by a black circle.

Each animated line represents a year. The further it stretches outside the circle, the more frequent the extremes that season. The deeper inside the circle, the less frequent the extremes.

Again, the exception is extreme cold where risk increases with fewer cold days.

Enter your postcode to find your region. Scroll down and select from the smaller charts to compare different types of extreme weather.

This feature is unavailable on the ABC App. Go to the web version via the link above or swipe down to keep reading.

'Dangerous market failure'

Increased intensity and frequency of extreme weather doesn't necessarily mean more expensive losses, Mr Sullivan says.

"We can change the built environment to make less brittle homes … And we can build mitigation around existing townships. There's plenty of evidence to show that when you build it, insurance prices tumble as a result."

However, he concedes that the industry is no longer heavily involved in setting building codes and if nothing is done to cap the risk "then yes, [premiums] will become far more expensive and you could get to a point where it becomes unaffordable for the average person."

We've arguably passed that point, Mr Andrews says, with flood premiums for people in risk zones already priced out of reach.

"While insurers will offer them cover, most people don't take it up, so … if it's not an insurability problem, it's certainly an affordability problem," he says.

Regardless of how its framed, the consequences stretch far beyond those currently living in high-risk areas, Dr Mallon warns.

"We see a particularly dangerous market failure," he says.

The cornerstone of that failure, he says, is that insurers can effectively abandon policies or areas from one year to the next if they decide the risk has become too severe.

Because all prospective homeowners need insurance to secure a mortgage, this creates a ripple effect.

"Once insurance becomes very expensive or unavailable it becomes very difficult to sell that house because the next person can't get proper insurance to get their mortgage," Dr Mallon says.

"So the effects of insurance becoming unavailable are potentially catastrophic for areas which are exposed to current or future extreme weather."

Rather than refusing cover or hiking up premiums, insurers should take an active role in helping communities mitigate against climate-related risk, Dr Mallon says.

"They should be … saying to people, 'We can't provide cover for your house for, say, flood risk, unless you do something like raise it up or put flood defences around it', or what have you."

He also wants insurers to be more transparent about how long they think they can provide a policy.

"If you're taking on a mortgage, you want to know that you've got an insurer over the life of that mortgage," Dr Mallon says. "You really want 30 years of foresight — and the analytics for that are available."

But while the industry can continue to influence the debate on how to build appropriately for locations prone to extreme weather, Mr Sullivan insists price remains an important tool.

"We're not in there in regulation. Nobody needs to consult us … but we are sending a price signal and that's sending its own line of thought and thinking to the community."

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Topics: environment, insurance, environmental-policy, environmental-management, climate-change---disasters, storm-disaster, floods, australia

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