Climate change, insurance and the economy

Insurance Australia Group Limited (IAG) is a successful Australasian public company which has realised the implications of climate change on its own future business and for society in general. As a result of reading the Case Study the student should be able to:

• Explain the basic concepts of insurance 
• Understand the implications of climate change on individual lives, on the insurance business and on the economy 
• Describe IAG corporate social responsibility programs in relation to greenhouse gas emissions.

Introduction

The most expensive natural disaster in Australian history occurred in Sydney in April 1999, when hailstones the size of cricket balls smashed into roofs and cars, inflicting $2,200 million in damage (in today's dollars).

How does insurance work?

Many people own something valuable which would be very costly to replace if it became damaged or destroyed, such as a house, car or business.

Climate change

If current trends continue, it is predicted that the rate of warming over the next 100 years will be greater than it has been over the last 10,000 years.

Climate change - the effects on the insurance industry

With the increased number and severity of natural disasters, the costs associated with these events will continue to rise.

Thinking globally

Large and unanticipated losses can place an enormous pressure on any one insurance company should a disaster occur.

IAG's contribution

A less predictable climate potentially increases the number and severity of claims payouts for an insurance company like IAG.

Conclusion

Insurance Australia Group Limited is a successful Australasian public company which has realised the implications of increasing climate change, not only on its own future business but for society in general.