The Australian Prudential Regulation Authority (APRA) has listed increased natural disaster frequency and severity as among its focus areas for the next four years. 

“General insurance claims costs have increased due to natural disasters, supply chain disruptions and skills shortages,” APRA says in its 2023/24 Corporate Plan, which covers the four years to 2026/27. 

“The resulting impact on profitability, reinsurance and operating costs will continue to impact insurance coverage for Australians.” 

APRA says the increased frequency and severity of natural disasters, linked to climate change, are reducing access to affordable insurance particularly for those in at-risk areas. 

The prudential regulator will address challenges in the reinsurance market for general insurers by reviewing prudential requirements for reinsurance to ensure they remain fit for purpose. 

APRA is also looking at the growing threat of cyber attacks and scams, inflation pressures and rising interest rates and climate-related financial risks facing Australia. 

On climate-related financial risks APRA says it has increased expectations on insurers and other regulated entities to prepare and respond to the financial risks associated with a changing climate. 

Climate change impacts the value of certain assets, income streams and underwriting risks which, in turn, impacts the risk profile of regulated entities, APRA says. 

Over the course of the Corporate Plan the regulator will conduct a Climate Vulnerability Assessment to assess the impact of climate risk on access and affordability of general insurance. 

APRA will also embed climate risk in its Supervision Risk and Intensity (SRI) model to require ongoing supervisory assessment of the threat; and use existing and new data collections for climate risk to prepare and develop insights on emerging issues and best practices. 

“Two years after APRA first based its Corporate Plan around the twin themes of ‘protected today’ and ‘prepared for tomorrow’, that philosophy still underpins our work,” Chair John Lonsdale said. 

“The actions we take and areas we focus on, however, cannot remain static. As new risks emerge or accelerate, increasingly driven by technological innovation, our agenda continues to evolve in response to the changing operating environment.”