Insurers have been warned against underestimating the gradual increase in natural peril costs due to climate change.

“They are at risk of always being in a position of playing catch-up with natural peril funding, unless more specific recognition is given to the gradual impacts arising from climate change,” Finity Consulting Principal Tim Andrews says.

But Australian insurers are waking up to the systemic risk climate change poses.

He says the Australian Prudential Regulatory Authority is approaching insurers to see what actions they are taking in relation to climate risk.

Listed insurers will disclose climate risk in their financial statements within the next few years, and this will affect other insurers’ behaviour.

Insurers can manage the physical risks of climate change by repricing and re-underwriting risk annually, Mr Andrews says.