The function of insurance in our community is highlighted in Australian natural disasters. Insurance in natural disasters has been in sharp focus since at least 2010. The variety, frequency, severity of natural disasters and catastrophes in Australia create unique challenges for the community, policyowners and insurers.
The fire, flood and cyclone natural disasters of 2010 and 2011 caused exceptional and distressing loss in the communities, and a number of inquiries into those natural disasters highlighted the role of insurance in paying claims and helping communities to recover.
A primary challenge of the insurance industry is how to influence the adoption (by governments) of built environment policies that reduce hazard exposures in the community, leading to a reduction in claims value and volume. Insured losses to extreme weather events are growing, partly as the result of an increase in frequency and intensity of weather events, and partly as a result of building more expensive assets, in more brittle ways, in more hazardous areas. A longterm systemic failure to develop a built environment that is durable to the range of extreme weather experienced in Australia is now catching up with some regions. Insurers, required to price in accordance with risk, then transmit a price signal, through higher premiums, that reflect this systemic failure.