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Wilder weather the new norm

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Insurers must offer targeted and affordable cover to help prepare consumers for increasing and intense bouts of wild weather, according to Insurance Australia Group CEO Mike Wilkins.

Modelling from IAG’s natural perils team indicates that in the next 40 years there is likely to be a 15% increase in the number of the most destructive category 4 and 5 tropical cyclones and an increased frequency of cyclones tracking south into northern NSW.

Mr Wilkins told an American Chamber of Commerce event in Sydney last week the team also expects the number of serious hailstorms – with stones up to 10cm – to double over that period.

“A changing climate will present challenges at all levels of society, and the insurance industry must be right at the centre of the response,” he said.

“In the past 12 months IAG’s businesses have handled more than 150,000 additional claims, over and above our normal ‘business as usual’ claims activity.”

Mr Wilkins says he supports the Productivity Commission’s inquiry into the barriers affecting climate change adaptation and says the terms of reference “clearly acknowledge the role insurance can play”.

He has also backed the Federal Government’s moves to streamline flood definitions in insurance policies and provide clearer information for consumers.

“While there were reasons for many insurers being unable to offer flood cover in Queensland, the fact remains [that] a lot of people who thought they had cover did not,” Mr Wilkins said.

However, the increasing risk of natural disasters and better targeted coverage would likely result in more expensive premiums and there was a significant risk that people would opt out altogether.

“The affordability of insurance is an important social issue. Private insurance policies aren’t just a safety net for businesses and individuals; they are a safety net for the taxpayer,” he said.

“So when someone drops out of the safety net or is underinsured, there is a potential economic impact for the rest of us.”

He says the elimination of state-imposed insurance taxes would help lower the cost of premiums.

“There is broad agreement that these taxes are among the most inefficient and distorting taxes in our system.”

He says state taxes add an extra $4.25 billion each year to the total cost of insurance policies, he said.