Sea change: what drives adaptation to climate change?

Can insurers or reinsurers change our behaviour and help us adapt to climate change? Australia’s obsession with sea changes, waterfront properties and coastal living has a dark side that will make its presence inevitably and abundantly felt in coming years.


With six per cent of homes less than three kilometres from the ocean, and the number increasing, Australia is one of the most vulnerable nations in the world to the effects of rising sea levels.

The Department of Climate Change estimates that as many as 250,000 Australian homes, worth $63 billion, will be inundated by 2100 if sea levels rise by the forecast height of one metre. Over 90-odd years, a metre may seem manageable, but it’s not the rising water level alone that is the problem.

Far greater harm will be wrought on coastal communities, infrastructure and ecosystems by the accompanying increases in extreme weather events such as cyclones, flooding and storm surges.

The complexities of the issue, the seemingly extensive timeframe and the enormity of the challenges, have made rising sea levels something of a political hot potato. We know that it matters, but who is going to take responsibility?

Up until now, insurance has been first, and best, defence against the ravages of climate change for business and consumers. But re-insurers, those that that insure the insurers, have been modelling long-term potential scenarios, and, in the face of increased extreme weather events, they believe it’s time to start adapting to new circumstances. Can the insurance industry act as a catalyst for changed behaviour in the face of growing risk to assets, businesses and homes?

After all, insurance has been the driver for widespread social and economic change: safety in cars, public health campaigns, safe building standards, almost anything.

Dr Justine Bell is part of an interdisciplinary team based at The University of Queensland examining the impact of sea level rise, and policy and business implications. She believes the state government’s hands are tied in certain areas of adaptation, such as flood proofing of existing dwellings.

“The government can’t retrospectively impose development controls on people without having to pay compensation,” she says. The answer is more likely to be factoring adaptive behaviour into insurance premiums.

The Federal Government has proposed mandatory flood insurance, but it’s not an initiative that the insurance industry has embraced. Insurance premiums in high-risk areas will eventually become prohibitive as the regularity and severity of flooding increases. Faced with the prospect of having to withdraw cover from high-risk locations, insurance and re-insurance companies have been supportive of climate change adaptation options.

Dr David Bresch, Global Head of Sustainability at reinsurers SwissRe, explains that even if global greenhouse gas emissions cease today, climate change will continue for some time to come. “It’s time to face the probability and begin to adapt,” he says. And the most persuasive argument is likely to be an economic one. “Decision-makers need a rigourous cost–benefit model that assesses risk, prices it and balances that with the cost of the range of adaptation options available.”

SwissRe’s Economics of Climate Adaptation model has been designed to make transparent the numbers behind climate change impact. “Numbers are a solid starting point for grounded discussion,” and Dr Bresch believes this is a useful contribution in the ever-emotive climate change discussion.

Dr Bell sees an opportunity for government to become involved as well.

“Grants or interest-free loans could be offered to people who take adaptation measures,” she says. “It’s a good way to get around the legal barriers that prevent government from taking action to fix these problems.”

Dr Bell’s research is part of an interdisciplinary project with The University of Queensland’s Global Change Institute (GCI), which has sought to address the lack of thought leadership and planning framework in the area of sea level rise through the Australian Sea Level Rise Partnership (ASLRP), established in 2011.

“Sea level rise has almost exclusively been dealt with in the domain of science – understanding the bio-physical impacts and changes that occur to ecosystems in response to sea level rise,” explains Professor Andrew Griffiths, Dean of UQ Business School. “Drawing on multiple disciplines – law, economics, business, planning as well as the physical sciences – ASLRP will generate new insights and solutions to complex problems. The team seeks to create a framework to enhance policy choices around infrastructure, business investment and property protection under uncertain futures.”

ASLRP researchers are also examining the potential role of the insurance industry in the protection of ecosystems – or green infrastructure – such as mangrove forests.

Mangroves provide erosion protection for coastal areas in the event of cyclones or storm surges. In 2011, the Department of Environment and Resource Management noted that the damage bill for Cyclone Larry, 2006, would have been significantly higher without the mangrove forests along the north Queensland coast.

“With a mangrove forest in place, the amount of wave energy that reaches the shore is minimised,” says Dr Bell. “But mangroves themselves can be damaged by storms, which can lead to a decline in mangrove numbers, which in turn means more wave energy will reach the shore.”

But that’s not all. Mangroves are significantly more efficient than terrestrial trees at sequestering carbon dioxide from the atmosphere. And the health of commercial and recreational fish stocks in Queensland are heavily reliant on mangroves for nurseries.

The research team at the Global Change Institute has proposed an insurance mechanism to cover the rehabilitation of mangroves that are damaged by extreme weather events.

Preserving mangroves is among the most cost effective climate adaptation options identified by SwissRe’s research. ‘Every 10 cents spent preserving mangroves reaps a dollar in loss prevention,” says Dr Bresch. “Mangroves highlight the importance of green infrastructure in the basket of adaptation options.”

Should mangroves become a valuable commodity for carbon offset markets as is hoped, Dr Justine Bell suggests “an insurance scheme will arguably be necessary to protect financial investments.”

ASLRP research acknowledges there could be challenges in marketing a mangrove insurance product, but found a sound legal basis for its development. It suggests that a mangrove insurance product could be sold to government or property owners, who might receive a discount on home insurance in return for purchasing a policy, or even as a group product similar to body corporate insurance.

To SwissRe, the role of reinsurers in managing climate risk is clear. “We are not experts at adaptation; we are experts in modelling risk. A cost-benefit framework of adaptation options in the face of risk will create transparency and inform decision-making,” explains Dr Bersche. One thing is indisputable, he believes. “Climate change will happen. We can’t avoid the inevitable, but we can manage the unavoidable.”

Australia has the most abundant mangrove habitats in the world, after Indonesia and Brazil. They are found in all coastal mainland states and territories, and fringe 18 per cent of the coast. All states and territories except Victoria have government legislation to protect them. And they’ll be glad they have.

Scientists have recently discovered that blue carbon, sequestering carbon in mangroves, sea grasses and salt marshes, can sequester carbon at rates 25 to 40 times greater than terrestrial forests, and can store it for millennia. As sea levels rise, the habitats may even have the capacity to grow vertically and keep up, burying away carbon-rich mud as they do.

“From a business perspective,” says Dr Shay O’Farrell, Head of the ASLRP, “there’s a lot of talk about getting [mangroves] into global carbon markets, to use them for carbon offsetting,” he says. “Scientists are trying now to get the uncertainties down. Business wants to invest but they also need to be fairly certain about the return on their investment.”

Last updated:
24 March 2021