The annual average risk costs of extreme weather and climate change to properties is projected to rise to A$91bn ($63.48bn) per year in 2050 and A$117bn per year in 2100, revealed findings from the Climate Council of Australia's report on the domestic costs of climate change. These costs will be reflected through higher insurance premiums and will primarily impact the same households that will experience the steepest losses in property values due to events caused by climate change.

The Climate Council of Australia is an independent and crowd-funded organisation seeking to provide information on climate change to the Australian public. Its latest report, titled ‘Compound Costs: How Climate Change is Damaging Australia’s Economy’, presents findings on how climate change is a major threat to Australia’s financial stability and poses substantial systemic economic risks. The report also warns that delays in taking swift and decisive action against climate change will cost the Australian economy dearly.

According to the report, certain Nat CAT events may not be covered by commercial insurance even though the frequency of these events is set to rise due to climate change. While hazards such as bushfires, riverine flooding and storm damage are generally covered, events such as coastal inundation, erosion, landslip and subsidence are all generally excluded. This means that people and businesses are effectively self-insured against these hazards or insured by the taxpayer.

New modelling reveals exorbitant costs to property and agriculture

Based on the Australian Federal Government’s current approach to climate change, detailed new modelling commissioned by the Climate Council for the report have disclosed that the economic damage to Australia’s property and agricultural sectors will be very significant with possible sharp adjustments in residential property values in some areas.

The modelling was conducted in two parts. Firstly, damages from climate change to agricultural productivity and labour productivity were modelled using the Global Trade Analysis Project Computable General Equilibrium Model. Next, a separate analysis was undertaken by the Cross Dependency Initiative (XDI) which included each property being tested against six extreme weather hazards – flood, coastal inundation, bushfire, wind storms, heatwaves and soil subsidence. This assessment is said to be one of the largest climate change risk assessments of property in Australia.

Results from the modelling disclosed that the total estimated damage related loss of property value – excluding any disruptions to productivity – is expected to rise to A$571bn by 2030, A$611bn by 2050 and A$770bn by 2100. These costs are likely to be highly concentrated on about 5-6% of properties and could lead to insurance premiums possibly being effectively unaffordable by 2030 for one in every 19 property owners in Australia as premiums would cost 1% or more of the property value per year.

Recommendations to tackle risk costs

Considering the increasing prevalence of Nat CAT events, the report has called for an in-depth study on this topic which will present a more comprehensive view of the likely economic costs resulting from climate change. It has also put forth recommendations that the government can adopt to avoid certain losses and damages involving activities such as:

• Reducing emissions to net zero by 2050 or earlier, through clear and coordinated policy leadership
• Strengthening building codes to increase the thermal efficiency and energy efficiency of buildings as well as ensuring building designs are fit-for-purpose to cope with increasingly frequent and severe climate-influenced hazards
• Adopting risk-appropriate national land-use planning guidelines that prevent new buildings and infrastructure being constructed in areas that are, or will be, highly exposed to climate change hazards, and that help facilitate the reduction of emissions across the transport and buildings sectors
• Upgrading and constructing new infrastructure (including infrastructure specifically designed to mitigate disaster risks), informed by a national assessment.