Extract from The Guardian
Extreme weather events, underinsurance and banks invested in a nation
of coastal properties mean the economy is vulnerable, the Climate
Council says
Australia’s financial system is ill-prepared for the impacts of climate change, the Climate Institute has said.
A new discussion paper warns of threats to Australia’s banking, insurance and superannuation sectors not mentioned in the Abbott government’s inquiry led by David Murray.
It says although several submissions made to the financial system inquiry in 2014 referred to climate risk, its final report made no mention of the issue.
“This risk deserves closer examination by our policy markers and financial regulators,” the Climate Institute chief executive, John Connor, said.
The report says that, with two-thirds of bank assets tied up in residential property mortgages, banks have a high exposure to the effects of climate change in a country that has mostly coastal dwellings.
It points to the Queensland floods in 2014 as highlighting the risk of economically destructive events away from the coast.
The report says many Australian properties are underinsured, particularly those considered to be vulnerable, and banks have “limited visibility” of their exposure due to the lack of property insurance verification beyond the first year of a mortgage.
Insurers do not spread risk adequately across geographic areas, the report says. Rather, they calculate on a specific area, and this practice results in rapidly rising premiums in response to events.
“It demonstrates that insurers will not redistribute higher risks from some households, but will instead leave some properties uninsurable,” the report says.
The carbon-intensive nature of the economy and the stockmarket suggest a substantial number of Australians might be exposed to climate risk through their superannuation.
The report says industry efforts to manage this risk remain voluntary and non-standardised, and individuals might have limited ability to make informed decisions.
“With exposure to climate risk in so many parts of the financial system and the economy, there is a pressing need for focused regulatory attention,” the report says.
A new discussion paper warns of threats to Australia’s banking, insurance and superannuation sectors not mentioned in the Abbott government’s inquiry led by David Murray.
It says although several submissions made to the financial system inquiry in 2014 referred to climate risk, its final report made no mention of the issue.
“This risk deserves closer examination by our policy markers and financial regulators,” the Climate Institute chief executive, John Connor, said.
The report says that, with two-thirds of bank assets tied up in residential property mortgages, banks have a high exposure to the effects of climate change in a country that has mostly coastal dwellings.
It points to the Queensland floods in 2014 as highlighting the risk of economically destructive events away from the coast.
The report says many Australian properties are underinsured, particularly those considered to be vulnerable, and banks have “limited visibility” of their exposure due to the lack of property insurance verification beyond the first year of a mortgage.
Insurers do not spread risk adequately across geographic areas, the report says. Rather, they calculate on a specific area, and this practice results in rapidly rising premiums in response to events.
“It demonstrates that insurers will not redistribute higher risks from some households, but will instead leave some properties uninsurable,” the report says.
The carbon-intensive nature of the economy and the stockmarket suggest a substantial number of Australians might be exposed to climate risk through their superannuation.
The report says industry efforts to manage this risk remain voluntary and non-standardised, and individuals might have limited ability to make informed decisions.
“With exposure to climate risk in so many parts of the financial system and the economy, there is a pressing need for focused regulatory attention,” the report says.
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