The National Insurance Brokers Association has urged insurers to provide “clear and detailed explanations” of pricing structures to address concerns about the way climate risk is factored into premiums. 

A Senate select committee is examining climate impacts on premiums and cover availability, including the extent to which rising climate risk is being priced into products not exposed to such risks; cost impacts across communities, demographics and regions; the role of government; and how the pricing of climate-driven disaster risks can be better redistributed across the economy.

In a submission, NIBA says there is growing concern that increased climate risk is being priced into products not directly affected, with pricing models designed to spread risk across a broad base of policyholders.

“As climate risks increase, there is evidence insurers are adjusting their pricing models to incorporate the heightened risk of natural disasters into all products, regardless of direct exposure,” it says.

“This approach can lead to significant premium increases for policyholders who do not directly face climate-driven risks.”

The practice of cross-subsidisation raises questions about the fairness and transparency of pricing, and policyholders who do not face direct climate risks may feel unfairly burdened, it says.

“To address these concerns, it is crucial insurers provide clear and detailed explanations of their pricing structures. Enhanced transparency can help policyholders understand the rationale behind premium increases and foster greater trust in the industry.”

NIBA also highlights the importance of mitigation as catastrophe impacts increase, and supports extending the Disaster Resilience Fund to a 10-year rolling program.

“The role of government in implementing climate adaptation and resilience measures is paramount to reducing risks and the cost of insurance.”

The committee inquiry, chaired by Greens senator Mehreen Faruqi, will present its final report by November 19.

“More and more of this country is becoming unaffordable and uninhabitable as climate disasters escalate and insurance premiums soar,” Senator Faruqi said after the inquiry launch. “For this to be occurring during a cost-of-living crisis and while fossil fuel companies make a killing is outrageous.

“We want to hear from communities and individuals who are bearing the brunt of climate-driven risks.”

NIBA’s submission is available here.

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