Global events and Australian insurance
Understanding the impacts
The recent wildfires in California have raised concerns about potential repercussions on premiums in Australia. The devastating events caused immense destruction to homes and businesses, with insured losses estimated to exceed US$20 billion1. The true impact of this event will undoubtedly extend beyond US boarders with global insurance and reinsurance markets feeling the pressure.
Rising pressure on global reinsurance
Disasters of this scale can place significant strain on the global reinsurance market, which plays a crucial role in helping insurers manage catastrophic losses. When reinsurers face large payouts, they often respond by increasing their premiums, making coverage more expensive for insurers to obtain.
It’s important to note that forward-looking financial models do already account for events of this nature, and from a global perspective, 2024 was a relatively quiet period for major catastrophes, which has reduced the cumulative pressure on markets. However, with increasing frequency of climate related disasters over the last decade; which according to the Insurance Council of Australia, global annual insured losses from natural catastrophes totalled more than US$100 billion for six out of the last seven years2; we can expect to see continued upwards pressure on reinsurance pricing and this will have an impact on the price of property insurance for the end purchaser.
“…with increasing frequency of climate related disasters over the last decade, we can expect to see continued upwards pressure on reinsurance pricing…”
Lessons from California’s insurance crisis
California’s insurance market has been grappling with major challenges as insurers withdraw from offering coverage in high-risk areas. Strict state regulations and premium controls have led
many providers of property insurance to withdraw from the market. The California state has set up an insurer of last resort through FAIR, (California’s Fair Access to Insurance Requirements Plan3), which caps home damages at $US3 million. With an estimated 10% of Los Angeles homes uninsured4 and the state’s insurer of last resort offering limited coverage, many homeowners are left exposed.
Of course, Australia is no stranger to the effects of natural disasters on insurance affordability and there is growing concern in disaster-prone regions. While the regulatory environment differs to that of California, the underlying issue of balancing risk-based pricing with consumer protection remains a significant challenge.
What this means for the Australian market
Recent years have already seen significant premium hikes due to higher catastrophe losses, and this trend is expected to continue in the wake of the events over the last 12 months. The recent significant event in North Queensland will likely add further pressure.
Premiums will not be the only factor, however. Insurers are expected to place an increased emphasis on risk selection and mitigation—particularly for disaster-prone properties. The Insurance Council of Australia in their 2023-24 Insurance Catastrophe Resilience Report5 examine a catastrophe season that was marked by four major weather events and strongly advocates for changes to lessen the financial impact of future events. Notably strengthening building codes, improving land-use planning, and investing in resilient infrastructure to future proof Australia.
“With increasing scrutiny from insurers, property owners should adopt a proactive approach to securing optimal coverage. ”
The need for proactive risk mitigation
A recent example from our own client base highlights this shift in risk selection and mitigation6. A national food manufacturing business successfully negotiated a more favourable insurance position—both in pricing and excess terms—by committing to install steel mesh on building openings to prevent ember attacks in the event of a nearby fire. This one example demonstrates how proactive risk management can go some way to improve insurability and reduce costs.
With increasing scrutiny from insurers, property owners should adopt a proactive approach to securing optimal coverage. Here are key steps to take:
- Start Early – Engaging with insurers 6 to 8 weeks before renewal allows time for better negotiations and reduces the risk of rushed or unfavourable terms.
- Partner with an Experienced Broker – Working with a well-resourced insurance broker ensures that your risk is positioned accurately and competitively in the market.
- Engage a Risk Engineer – A professional risk assessment can provide valuable mitigation strategies and a structured survey report that improves underwriting outcomes.
Looking ahead
Severe weather and catastrophic events underscore the interconnectedness of global insurance markets and the importance of proactive risk management. With climate related disasters becoming more frequent, and severe insurers and policy makers will need to find solutions to ensure coverage is accessible while maintaining financial stability in an increasingly volatile climate.
SOURCES 1. https://www.abc.net.au/news/2025-01-14/los-angeles-wildfires-insurance-australia-costs-premiums/104804164 2. https://insurancecouncil.com.au/wp-content/uploads/2024/07/Industry-Snapshot_INCA015-Fact-Pack_v13.pdf 3. https://www.insurance.ca.gov/01-consumers/200-wrr/California-FAIR-Plan.cfm 4. https://lsj.com.au/articles/california-fires-put-spotlight-on-insurance-chaos/ 5. https://insurancecouncil.com.au/news-hub/current-catastrophes/ 6. https://austcover.dreamhosters.com/can-investing-in-risk-management-to-reduce-premiums-deliver-a-return/
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All information in this article is of a general nature (and has been prepared without taking into account your particular objectives, financial situation or needs. Before acting on any information contained herein, you should consider its appropriateness to you.). The information provided is not intended to replace any accounting, financial, insurance broking, legal, tax or other professional advice. Austcover Pty Ltd ABN 46 073 425 662 holds Australian Financial Services Licence No. 241799.