Climate risk insurance modelling for Australia’s future

This is the second in a series of climate vulnerability assessments aimed at testing the resilience of the financial sector to climate risk. Climate vulnerability assessments examine how well the financial system can respond to both physical and transition risks. The ICVA focuses on the affordability of insurance and the likelihood of households to reinsure when exposed to these risks. A key component of this is understanding the economic landscape and household purchasing power. Two NGFS aligned macroeconomic scenarios were modelled as part of the Insurance Climate Vulnerability Assessment and compared to a counterfactual scenario where there's no further increase in temperatures or transition policy action.

The economic impact of the current policies scenario across states are driven by the relative physical peril each state faces and their exposure to capital intensive industries. The economic impact of physical risks differs across states according to their relative exposure to various climate related events. Estimated damages are escalated based on a tail-risk interpretation of the ACS acute hazards guidance to determine the relative impact of acute damages across states