NIBA / Special Feature
asset values in high-risk areas, inflation, and the rising cost of reinsurance.
annually, with this expected to more than double to $8.7 billion by 2050. At the same time, the cost of repairing or rebuilding a home has risen by 29% since the start of the COVID-19 pandemic. These rising costs, combined with more frequent claims and increasing reinsurance premiums, are putting pressure on insurance affordability in high-risk regions.” Looking at insurance from a business perspective, the warning signs are already emerging. Dave Bazen, CEO of Asta Group, says: “The sustainability of insurance is at great risk, given premium rises cannot keep pace with increased weather-related claims costs, which potentially prices many consumers and businesses out of the market, leaving large sectors of the community exposed and even less premium to fund major losses for those remaining in the sector. “Destabilisation of this balance could collapse the industry unless new strategies are implemented to manage risk exposure in the changing climate.”
The affordability of insurance – and its sustainability as a proposition – has been talked about extensively in recent times. In Australia, we’re accustomed to this conversation. After all, news of natural disasters, and the first-hand impact we’re all seeing are increasingly commonplace. A report by the Actuaries Institute found that the proportion of ‘affordability- stressed’ households (those spending more than four weeks of gross household income on insurance premiums) had risen from 10% in 2022 to 15% in 2024. While this is understandable on a fundamental level – due to rising costs of building materials, labour and increasing claims – there could well come a time when the current approach to insurance isn’t sustainable much longer. A spokesperson for the Insurance Council of Australia says, “The insurance protection gap – the shortfall between risks that are insured and risks that are not – is widening in high-risk parts of Australia, driven by compounding extreme weather events, urban development and growing
“Despite being well-insured overall, Australia still faces significant coverage gaps. Global reinsurer Swiss Re estimates that Australia's protection gap for natural disaster losses reached US$12 billion over the decade ending in 2023 – representing one-third of the estimated US$37 billion total cost of natural catastrophes during that period.” Global Challenge, Local Impact It’s not an issue confined to these shores, however. In the US, states including California, Florida and Louisiana – prone to wildfires and hurricanes – are facing their own insurance challenges. The ICA spokesperson continues, “This challenge extends beyond Australia, with Swiss Re reporting that the global protection gap hit a record high of US$1.8 trillion in 2022. “In Australia, extreme weather is already costing households around $4 billion
“IN AUSTRALIA, EXTREME WEATHER IS ALREADY COSTING HOUSEHOLDS AROUND $4 BILLION ANNUALLY, WITH THIS EXPECTED TO MORE THAN DOUBLE TO $8.7 BILLION BY 2050."
54 / INSURANCE ADVISER AUGUST/SEPTEMBER 2025
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