Natural disasters are increasing in frequency and severity, and insurance is a societal good that needs to be sustained, a University of Queensland report says.

The paper identifies interconnected trade-offs to be addressed for disaster insurance to be sustainable and inclusive as the home cover protection gap widens, and provides a framework for industry, government and consumer collaboration. 

Considerations include the proportion of risks held by the private and public sector, including through government-backed pools; risk-reflexive versus solidarity pricing; and tensions between annual fixed-term insurance and long-term protection needs.

The report warns solidarity pricing, where society takes collective responsibility, may bridge the financial gap but will become unsustainable due to population growth, increased housing demand and changing weather patterns.

“In a time of escalating disaster risks, the only way that insurance can remain sustainable is to reduce physical risk of loss,” it says.

The report notes that historically, risk reduction has largely been divided between government – through building codes, planning laws and infrastructure works – and individuals responsible for protecting their own properties, with insurers having few levers of influence.

But government measures are broad and not always retroactive, while individuals often lack funds, knowledge or capacity, leaving a gap between the responsibilities.

“To bridge this gap, insurance could evolve beyond providing financial compensation to become a lever for physical risk mitigation by supporting government and individuals’ risk reduction measures,” the report says.

Examples where insurance has become involved include the Queensland government’s resilient homes fund and the Resilient Building Council’s bushfire ratings, it notes.

The report – Building Resilience: Linking Disaster Insurance and Risk Mitigation for a Sustainable Future, by Paula Jarzabkowski, Wendy Pham and Katie Meissner – is part of an Australian Reinsurance Pool Corporation and University of Queensland collaboration.

Find the paper here.