An increase in the size and frequency of natural disasters implies that models relied on by insurers to predict these events are obsolete, or at least need major recalibration, KPMG says.

Natural hazard reserves have vastly underestimated “the face of climate change,” with at least two of Australia’s leading insurers using up their full-year allowance in just six months.

“It has become an increasingly rare case where insurers’ predictions of their natural hazard allowances have proven to be adequate,” analysis by KPMG says.

Climate change is “upending” conventional assumptions about the role of insurance in addressing natural disasters and causing the industry and governments to rethink the ways that persons and property are protected.

Practical steps such as ensuring policyholders have the right roof shingle and building design for the exposure that they have, to making sure flammable material is is cut back from structures, could help.

“Building codes and environmental matters are two significant areas that require attention,” KPMG says.

“It will require shifting the traditional focus on protection more to prevention. This means the insurance sector working closely together with government, communities and policyholders.”

Greater access to real-time environmental data, and better predicting and pricing for extreme weather risks needs to be part of the solution to managing more severe hail storms, cyclones, flooding, and bushfire brought about by climate change, the KPMG report says.

Without better models, the price and availability of reinsurance coverage will eventually come under pressure in a world of increased frequency and severity of natural disasters. It says the new business model will have to rely on preventing loss from happening in the first place.