Global Insurance Law Connect - Property Catastrophe and Climate Governance Report

Global Insurance Law Connect (GILC) has announced the publication of its inaugural Property Catastrophe and Climate Governance Report, bringing together insights from 23 member firms across the globe. The comprehensive study explores the rapidly evolving landscape of natural catastrophe (nat cat) risks, the challenges facing property owners and insurers, and the innovative solutions required to bridge the growing protection gap.

Key themes emerging from the report include the mounting impact of climate change on insured and uninsured losses and the vital role of government schemes and insurance innovation in building resilience.

Cost of catastrophes escalating across the board

The report underscores the transformation underway in the property insurance market, driven by the increasing frequency and severity of weather events, urbanisation, and changing land use. It highlights how the escalating cost of catastrophes – both insured and uninsured – is putting significant strain on markets worldwide.

Gillian Davidson, Chair of GILC, comments, ‘Our new property catastrophe report captures the urgency of the protection gap challenge. As climate-driven perils intensify, insurers, governments and property owners are all grappling with the affordability and availability of insurance, particularly in high-risk areas. Building resilience is not just a technical challenge, but a societal imperative.’

In Australia, extreme weather events are becoming more frequent and severe, with cyclones, floods, bushfire, and coastal erosion posing an increasing threat to communities across the country. Since 2020, according to the Insurance Council of Australia’s statistics, there have been 14 declared catastrophes across Australia and 8 significant events.  A great deal depends on the broader government response to climate change, and the extent to which government policy drives better risk mitigation practices. In the absence of these commitments, the financial burden on the insurance market will inevitably impact the cost of claims and the availability of insurance coverage in certain geographical areas.

Markets under strain drive collective, innovative responses

The report details how rising claims and economic losses are leading to tighter policy wordings, increased exclusions, and in some cases, market withdrawals from high-risk territories. Governments are increasingly stepping in with regulatory reforms to maintain insurability and protect communities. 

In Australia, there is an increasing risk of property being uninsurable in certain regions of the country, with industry calling on governments and local councils to tighten planning laws and increase building standards as part of mitigating risk and enhancing climate resilience.

Despite these pressures, the report notes encouraging developments, including clearer policy language, greater incentives for risk mitigation, and the adoption of co-insurance and parametric solutions that enable faster recovery following catastrophe events.

Parametric insurance, catastrophe risk pools and technology-driven risk assessment tools are highlighted as key mechanisms for closing the protection gap. These innovations offer faster claims settlement, coverage for hard-to-insure events, and greater certainty for policyholders.

In Australia, there is a growing market for parametric insurance, driven by the increase in extreme weather events, a widening protection gap in traditional insurance, and the faster payouts that parametric solutions can offer.  A number of innovative products including parametric components have recently entered the market, underwritten by specialist MGAs. There is also a widespread increase in the use of technology, particularly artificial intelligence, to model and predict outcomes, which is likely to bring significant change.

Building resilience for the future

The overarching message of the Report is clear: the insurance industry has a critical role to play in shaping a more resilient and sustainable future. By fostering collaboration, incentivising risk mitigation and embracing innovation, insurers can help communities withstand and recover from natural disasters.

Gillian Davidson concludes, “The growing collaboration between all parties worldwide offers real hope that we can proactively manage natural disaster risk while maintaining the financial stability of communities and markets.’

Click here to access the full report.