APRA releases details on insurance Climate Vulnerability Assessment

The Australian Prudential Regulation Authority (APRA) has published an information paper outlining the objectives and design of the insurance Climate Vulnerability Assessment (insurance CVA) that is underway with Australia’s five largest general insurers.

The insurance CVA will help improve understanding of potential future insurance affordability challenges. It is intended to provide stakeholders with a more informed view of how insurance affordability may evolve between now and 2050 in response to the physical and transition risks from a changing climate.

APRA, the Insurance Council of Australia (ICA), and various government and private sector organisations are collaborating with IAG, Suncorp, Allianz, QBE and Hollard to model insurance affordability for two climate scenarios and an additional baseline scenario. 

The scenarios in the insurance CVA are not predictions of future climate outcomes and should not be interpreted as an official forecast. Instead, they explore possible futures under different climate-related assumptions. These assumptions are not intended to indicate likely future policy developments or responses from APRA or other government agencies.

This initiative commenced in July 2023 and builds on the 2022 banking Climate Vulnerability Assessment. This assessment examined the possible effects of climate change on bank credit risk and identified that climate change and the response to it may drive pockets of risk across Australia.

APRA expects to receive the affordability data from insurance CVA participants in early 2025 and intends to publish a report based on the submissions later in the year. 

APRA Member Suzanne Smith highlighted that financial regulators, including APRA, can play an important role in exploring how general insurance affordability may change into the future.

“APRA aims to support a resilient and robust insurance sector capable of meeting the needs of Australians in an increasingly uncertain climate. The findings of the insurance CVA will help to improve the national understanding of risks posed by climate change to general insurance and the impact on affordability and the protection gap in Australia. These insights can support a range of stakeholders to better manage future climate related risks,” Ms Smith said. 

The information paper is available on the APRA website: Insurance Climate Vulnerability Assessment.