The Federal Government’s $200 million per year spending on mitigation should be just the start of an increased insurance-related risk focus at Australia’s top political and regulatory levels, Insurance Council of Australia (ICA) President Nick Hawkins says.

“In government, we know who the chief executive officer is, and we know who the chief financial officer is. We know the head of security, but we don’t have a chief risk officer – should we?” he said at the ICA Annual Dinner attended by almost 300 people in Sydney last night.

Mr Hawkins says Australia has world class financial governance, through departments and regulators, and there’s deep understanding of bond and share markets and superannuation fund management.

“But as a country, do we look across the economy and across society, to understand how ultimately the coverage gap is met by the balance sheet of the nation,” he said.

“It’s in our national interest that we gain a deeper understanding of our baked-in risks and the true future costs to our economy - especially if the Commonwealth and state balance sheets are becoming increasingly exposed.”

Insurance risk transfers protect nearly $1 trillion of Australia’s property each year, while governments are increasingly on the hook for the shortfall of what is covered by the private market, as reflected with the new cyclone reinsurance pool, he said.

Mr Hawkins says he was alarmed to hear that two large US insurers have ceased offering new home and contents cover in California due to the challenges of pricing for risk, describing it as an extreme situation undoubtedly brought about by unsustainable losses.

“We can’t let that happen here. I would love to see a stronger interest in insurance and reinsurance markets – in how they work, in what moves them, in how they cushion the banking system, and how we insulate governments by managing the risk that citizens carry,” he said.

“And I would love to see that discussion about risk at the national cabinet table as we do around the executive team in our businesses.”

Mr Hawkins, also IAG CEO, says shocks are absorbed by managing rising demand for insurance and supply from capital providers, particularly reinsurers, amid evolving climate and emerging risks.

“As the risk dynamics of Australia, and indeed the world, change, this matching of supply and demand for our products is going to become more challenging for all of us,” he said.

“Traditionally, we have been an attractive place to put capital, and an attractive place to diversify. 

"However, we are witnessing increasingly expensive reinsurance markets for our country because of what we have experienced in recent years, and what we can expect in coming years because of climate change.”