Floods, fires and other physical risks represent only part of the story for insurers looking to manage climate change impacts and exposures, the annual Taylor Fry Radar report says. 

“The transition to net zero is undoubtedly changing the risks insurers face and manage,” principal Scott Duncan said. “For example, lithium-ion battery fires and liability exposure from withdrawing too slowly from carbon-intensive industries are top of mind for insurers.”

The increasing uptake of artificial intelligence in business also has climate implications, given its greater energy demand, Taylor Fry says.

The report highlights rising insurance affordability and availability concerns following cost-of-living increases and premium pricing impacts from natural catastrophes.

The number of household risks insured fell by about 3% in the nine months to June 30, the largest year-on-year drop since at least 2013. 

“The growing political focus means insurers must engage more actively with regulators,” Mr Duncan said. “By providing insights into the practicalities of climate risk pricing, insurers can help shape future regulations, balancing affordability with risk sensitivity.”

General insurance after-tax profit rose to $3.9 billion in the nine months to June 30, its strongest result in more than 10 years. Primary insurers’ profit of $3.27 billion was little changed from $3.4 billion a year earlier, while reinsurer earnings jumped to $663 million from $214 million. 

The report draws on Australian Prudential Regulation Authority data and Taylor Fry analysis to assess financial performance and significant industry issues. The use of nine-month figures reflects APRA data changes, with a new reporting framework starting from the December 2023 quarter.

Risks associated with AI emerged this year, with a rising focus on the need for coverage clarity.

“Insurers are very familiar with the issues associated with silent cyber a number of years ago, and there’s now a real focus on looking at the exposure to AI in traditional policies,” Mr Duncan told insuranceNEWS.com.au.

See Analysis.