Insurance the key to climate change disaster recovery

20 September 2019

With Queensland’s catastrophic bushfires front of mind, a strategic management academic from The University of Queensland (UQ) Business School is urging for adaptation of the insurance industry to assist in society’s ability to recover from climate change-related disasters.

The increasing frequency and severity of climate-change-driven disasters has led to calls for greater collaboration between the insurance industry and state policy makers, including investment in open-source risk models, which could improve society’s ability to recover from disasters linked to climate change.

UQ Business School strategic management expert, Professor Paula Jarzabkowski and her co-authors recommend that climate-risk models and data be better used to inform policy makers of the hazards and vulnerabilities in their respective countries.

“We need joined-up policy-making between treasury, environment and disaster-management divisions within government. These divisions must also work collaboratively with development agencies to put climate risk data at the heart of national adaptation strategies,” Professor Jarzabkowski said.

“Increasing our ability to recover from specific disasters and promoting both financial and physical resilience to its effects, is vital to society – and insurance is a key tool in this.

“Using insurance is a step towards risk management and it strengthens socio-economic resilience under a changing climate, however it is one of the only available disaster-risk financing mechanisms and its role needs to be considered within a broader fiscal framework,” she said.

In a background paper submitted to the Global Commission on Adaptation, Professor Jarzabkowski, Birkbeck University’s Dr Konstantinos Chalkias and their co-authors make seven recommendations to maximise the benefits of insurance for climate adaptation.

  1. Invest in open-source models that provide a long-term view of climate risk and link to insur­ance solutions.
  2. Joined-up policy-making to put climate-risk models at the heart of national adaptation strategies.
  3. Develop consistent climate adapta­tion regulation and standards across countries.
  4. Foster insurance innovations that can respond to a changing climate risk landscape.
  5. Strengthen dialogue between insurers and policy-makers around Build Back Better.
  6. Converge insurance, humanitarian and development agendas.
  7. Promote and invest in risk literacy throughout society.

Jarzabkowski suggests Australian businesses can build resilience to the effects of climate change by:

  • forming consistent and regulated international standards for climate-related insurance
  • encouraging shared data and best practice globally
  • Implementing adaptive insurance policies that can be altered with weather changes
  • leading the charge on ensuring following natural disaster, infrastructure is built back better.

 “Appropriate regulation ensures that climate-related insurance is safe for the consumer, in terms of ensuring both appropriate conduct by insurers, and that they will be able to pay claims and won’t all file for insolvency after a large disaster,” said Professor Jarzabkowski and her co-authors.

“Consistency across coun­tries is important as sound climate-risk insurance typically requires an appropriate balance between retaining risks in-country, and transferring to globally diversified interna­tional markets.”

The research is published in journal Insurance for Climate Adaptation.

Learn more about research with impact at UQ Business School.