The insurance sector must be better prepared for a climate-induced financial crisis hitting the global economy, economist and former politician John Hewson says.

“I would suggest to you that one of the biggest challenges for the insurance industry is climate risk and managing that climate risk properly,” he told the Australian Professional Indemnity Group conference in Sydney last week.

“I think the industry as a whole is pretty much unprepared for the consequences of what could happen very quickly.”

Dr Hewson chairs the Asset Owners Disclosure Project, a non-profit global group that aims to protect retirement savings and other long-term investments from climate change risks by improving disclosure and industry practices.

He says a survey of major global asset owners, which includes pension funds, sovereign wealth funds, insurers and university endowment funds, shows the level of climate-exposed investments remains a key risk.

The retirement investment sector continues to be slow to respond, he warns.

“The bulk of the industry still uses asset managers and advisers that are short-term focused and short-term renumerated that think climate [change] is something out there that will happen on someone else’s watch, if it happens, but it is not a risk today.”

Dr Hewson says there may be an increase in fiduciary responsibility legal cases targeting directors and trustees when climate risks have been ignored.

Risks arise from extreme weather events, government policy responses that could change asset values and technology that could alter the relative attractiveness of different investment targets.

“The most likely thing is that those three factors come together,” he said.

Dr Hewson, who is also Chairman of GSA Insurance Brokers, told the conference the global economic environment is more unpredictable than at any period in his life, amid low interest rates and political uncertainty.

China’s GDP is likely to be below official government estimates and will not lift the constrained Australian economy as it did during the global financial crisis, he says.