Kate Lyons was working as a reinsurance broker at Aon Benfield in London when hurricanes Katrina, Rita and Wilma ripped through North America in 2005.
‘There was a lot of activity around helping the US market to buy extra cover,’ she says.
'Then came the question of how three Category 5 hurricanes in one season would affect pricing tools and models, and the way reinsurers think about climate change.
'I expected to see a great deal of action and progress but, in the end, surprisingly little changed.’
Four years later, she returned to Australia to work in actuarial pricing and valuations for the Lloyds syndicate, Catlin.
‘It was really quite difficult to quantify the cost of natural hazards in our portfolio,’ she says.
‘This is a common theme across the industry. In general, the continuing increase in the cost of natural hazards is an early sign of how climate change is going to affect the industry.'
Time for action
Now Suncorp’s executive manager of reinsurance strategy & operations, Lyons also chairs the climate action committee of the Insurance Council of Australia (ICA) and leads the Actuaries Institute’s climate change research working group.
She describes a recent meeting with a group of climate scientists, who confirmed an urgent need for practical action right now.
‘They pointed out that Australia’s position relative to the equator means that changes here will always be more extreme,’ she says.
'For example, the global average is 1.2 degrees above pre-industrial levels but we’re warmer by 1.4 degrees.’
The affordability issue
However, being insurable doesn’t necessarily mean the available cover is affordable.
‘If you have a home that isn’t very resilient in a high-risk area your premiums could be beyond your means,’ Lyons says.
‘Clearly, we need reduce underlying risk by improving the resilience and preparedness of properties and our built environment.’
Suncorp Group is currently supporting the ICA’s advocacy for improvements to the national construction code that considers financial loss as well as protecting people’s lives.
‘Every insurers’ goal is to meet their promise to customers in repairing and rebuilding homes,’ she says.
Ideally, we’d rebuild to a standard that reduces the current levels of damage and loss and takes account of a changing climate so new homes are designed to withstand the next event that comes along.
‘The ICA climate change action committee commissioned, designed and had oversight of a study of building damage with James Cook University and Risk Frontiers.
'We’ve been looking at claims data from 10 events since 2000 and we have quite a laundry list of recommendations for the next round of building code upgrades, but that doesn’t happen until 2025.’
Better than code
Suncorp Group is also advocating for ‘better-than-code’ resilience and earlier this year launched the One House to Save Many campaign, as well as a new home insurance product feature Build it Back Better to add additional recommended resilience options when repairing a home.
‘We’re also looking at what “better-than-code” looks like,’ she says.
‘We’d like more people to understand that, while the current building code might be a good baseline for protecting against injury and loss of life, it won’t necessarily protect your belongings or keep you in your home.’
Impact on claims
Lyons has also been considering the impact climate change will have on various industry sectors.
Climate change risk and opportunity assessments usually consider physical risk, transition risk and liability risk. Lyons sees a strong role for all three across the claims space.
‘Natural hazard events will present more physical risks and, as we have a very vulnerable built environment, there will be a lot of work for claims experts,’ she says.
‘I also anticipate that, through transition, there will be an expansion into new insurance products or products that cover new technology, which will also bring new challenges for claims.’
Lyons is taking part a panel discussion at the AICLA/ANZIIF Claims Convention at Sydney’s Four Seasons Hotel titled In the Eye of the Storm: Weather Claims in a Changing Environment.
‘I’ve been discussing the session with my fellow panellists, David Sinai and Jimi Groom from Swiss Re,’ she says.
'We all agree that there are signals about the physical risks of climate change in the disasters we are seeing today.
'These signals suggest that we need to improve the resilience of our built environment and reduce emissions to reduce the risks to Australians.’
‘Along with the impact of climate change, we’ll be talking about some of the flow-on effects of COVID, such as the challenges around supply chains.’
The theme of the Convention is Claims Meeting the Challenges – Pandemic, Disasters, Regulations & Technology Changes.
Other topics planned include Australia’s devastating bushfires, asbestos and contamination claims and overall claims trends.
‘I’m looking forward to being part of a live event again,’ says Lyons. ‘It’s also a great opportunity to hear from a range of experts about the issues all insurers are facing in a changing world.’