Insurers should consider reviewing the way they manage climate change-related risks, according to a Climate Institute report.

The study says the industry and other key stakeholders, including regulators, banks and governments, can do more to help Australian homeowners prepare for potential financial losses caused by changing weather patterns.

But the Insurance Council of Australia (ICA) says it is working to improve community access to building resilience data through development of publicly available online tools, and that the report acknowledges insurers’ responsibilities are limited.

“The Climate Institute report recognises the importance of risk-based pricing in discouraging risk-exposed housing development, as well as noting it is not the responsibility of insurers to warn households about long-term climate-related hazards,” ICA Acting CEO Karl Sullivan told insuranceNEWS.com.au.

“As the report states, insurance cannot change underlying risk. Governments must therefore protect communities from known and predicted hazards.

“ICA continues to urge governments to invest more in pre-disaster mitigation to reduce the need to spend vastly greater sums recovering from repeated, and often predictable, disasters.”

The Climate Institute report says “improvements can and should be made” in both the industry’s own handling of climate risk, and its engagement in the broader policy debate.

Conservative estimates by the institute show at least $88 billion worth of housing stock last year is exposed to coastal erosion caused by climate change and more than 2% of houses are vulnerable to flooding risks.

“Australia is highly exposed to climate change and this will exacerbate many of these risks,” the report says.

“Scientists have already identified changes in heatwave patterns due to climate change, and are confident that sea level rise, movements in locations and intensity of storms and rainfall, and increasingly intense droughts will also occur.”

The 42-page report suggests insurers review assumptions about climate change; prioritise factoring in the best possible information; and communicate with clients clearly on how premiums reflect such risks.

It also urges insurers to actively support the development of an open and accessible platform for natural peril data and encourage better resilience in Australia’s housing stock.

Affordability looms as an issue, with some home premiums estimated to reach 38% of average annual household income by 2100, the report says, citing a 2014 study by Australian actuaries and climate scientists.

“If the frequency of damaging events continues to rise due to climate change, more areas will become too risky for insurers to cover at any price,” the report says. “This can lead to reputational and political risks, and ultimately, a shrinking in the market for insurers themselves.”