A Senate committee inquiry examining the impact of climate risk on insurance premiums must “ask systemic questions”, Marsh says.

In its submission to the inquiry, the international brokerage says that the number of weather-related disasters has risen five-fold over the past 50 years, and financial losses from such events have increased.

“With increasing momentum for households and businesses in exposed areas, the price to insure is either outpacing their ability to pay, or it outweighs the value of their assets,” the submission says.

“This is otherwise known as uninsurability. But uninsurability is an end result of many causes. All of these causes contribute to price.”

Marsh says that the task of insurance is “to manage the volatility of risk”.

“But it does not tackle the cause of that volatility – rather, insurance availability sits at the end point of the risk management chain.

“This is a chain comprised of other levers with which to attenuate baseline risk, such as mitigation and resilience policies.

“Because insurance affordability is the most visible and most immediate consequence of climate change-related weather events, it has become a default target of public scrutiny in Australia’s discussion on management of these impacts.”

But Marsh says that the inquiry needs to look deeper.

“In attempting to solve for a rapidly evolving, unsustainable, systemic situation, the committee should be asking systemic questions. 

“We believe that striking a balance between risk mitigation, resilience, and alternative risk transfer initiatives would help Australia reach the result that the cost of insurance – the endpoint of the chain – becomes more predictable.”

This requires a holistic approach to risk management, Marsh says, which addresses adaptation, land use planning, building codes, managed retreat, “and risk-financing strategies such as risk pools”. 

“A robust discussion on this issue must also consider that resolving insurance affordability and availability does not automatically resolve the host of other problems borne as a consequence of disaster-related losses. 

“There are other impacts – such as loss of livelihoods, health impacts, socioeconomic and community impacts, business operations being disrupted, and impact on property prices.”

The Senate select committee is due to report by November 19.

Click here to read the Marsh submission and others.