Climate Change Insurance Losses Force Improved Prediction Strategies

Whether or not extreme weather events are caused by climate change, they are having significant impacts on the insurance sector.  And since insurance has been the principal risk management strategy for weather induced damage for strata and community real estate for over 50 years that's important.

As this article by Nassim Khardem in BRW explains, 2011 was one of the costliest years ever for insurers with 820 natural disasters, an estimated $380 billion in losses and $105 billion in insurance payouts around the world.  Locally, the the Insurance Council of Australia estimates that insurers paid about 85% of the claims from the Queensland and Victorian floods and that the Melbourne hailstorm will involve $550 million in payouts.

That's caused insurers to look at making better predictions of weather impacts and potential risk and payouts.

One attempt to do that is the research centre, Risk Frontiers, based at Macquarie University.  They attempt to price the risk of natural disasters by using models to simulate large numbers of plausible natural hazard events like hailstorms, tropical cyclones, earthquakes and bush fires, and then estimate the losses to insurers' portfolios.

There's no doubt that this will help identify the risks to property and better price them for insurers.  

But how this also helps stakeholders better prepare for those risks, avoid them and.or limit the damage and loss is less clear.