Insurance innovations and incentives for adaptation using weather reanalysis tools for contract pricing

Insurance innovations and incentives for adaptation using weather reanalysis tools for contract pricing

Reanalysis techniques show that extreme weather events such as heat-waves and significant, severe hail have increased over most of Australia in the last fifty years of the 1871-2008 period. Indemnity insurance of such weather hazards is becoming increasingly expensive and difficult to price as they become a more systemic feature of the Australian climate. Innovations such as index-based insurance based on site moisture and climate indicators such as the Southern Oscillation may offer a better treatment of such multiple perils by allowing a more widespread offsetting of risks for vulnerable communities. Such benefits may be increased if some aggregation of risks is encouraged by insuring co-operatives, longer-term contracts are used to provide some stability to the market and adaptation incentives are offered to the participating groups as a way to lower the premium costs. We illustrate these arguments by considering the insurance of weather risks for a typical farming community in the Queensland to New South Wales near-coastal strip. There is considerable potential for useful interactions with other sectors such as the energy and water industries.

© National Climate Change Adaptation Research Facility 2012
NCCARF Publication 14/12. Abstract of oral presentation only.