How Climate Risk Is Changing the Australian Insurance Industry

The Australian insurance market is being reshaped by the intensifying effects of climate change. As the frequency and severity of natural disasters escalate, insurers are confronting mounting financial and operational pressures.

According to Gallagher Bassett's annual whitepaper, The Carrier Perspective: 2025 Claims Insights, 92% of insurers in Australia have reported a significant increase in interest in climate-specific insurance products — a 34-percentage point rise from 2024. This growth far exceeds the global average and reflects the country's acute exposure to climate volatility. The surge is being driven by a series of increasingly severe catastrophic (CAT) weather events — floods, bushfires, heatwaves, and storms.

Highlighting the significance of the transformation, John White, head of Sales and Client Services — General Insurance at Gallagher Bassett, commented, "The frequency and intensity of climate events are prompting insurers to rethink traditional approaches to underwriting, resource management, and claims handling. Insurers are responding in a number of ways, including reassessing their coverage requirements, reviewing the allocation of resources, and increasing the use of awareness and safety campaigns. These changing needs are redefining strategic priorities, placing environmental factors at the core of long-term ESG planning."

According to the report, two-thirds of Australian insurers expect environmental factors to have the most significant impact on their environmental, social and governance (ESG) strategies over the next three to five years — more than any other region surveyed.

John said, "It's particularly telling that only 8% of Australian insurers reported no change in demand, compared to 29% globally. This is closely linked to the rising frequency of claims related to prolonged heat exposure — something 66% of Australian insurers have observed, compared to 47% globally."

These figures align with CSIRO's findings that Australia's average temperature has risen by 1.51 ± 0.23°C since 1910, with most of the warming occurring since 1950.¹

"The climate signal is clear, and it's fundamentally reshaping how insurers approach risk, resilience, and long-term preparedness," added John.

At the same time, insurers are reassessing their internal capabilities. While 96% are adjusting resource strategies to manage the operational strain of frequent CAT events, only a small proportion have adopted flexible, scalable models. Many are prioritising the development of contract adjuster pools to manage post-disaster claims surges, but a gap remains between recognition of the challenge and implementation of agile solutions.

"As the industry evolves, collaboration will be key," John said. "Working closely with researchers, data models, policymakers, and operational partners will enable insurers to be prepared and deliver value to the market. At Gallagher Bassett, we see a clear need for scalable and flexible solutions that can help insurers respond with agility.

"Our clients are looking for more than just operational support — they are seeking insights, and flexible resourcing models that can adapt to the volatility of climate risk. Gallagher Bassett is proud to be at the forefront of this challenge, helping insurers navigate complexity with clarity and confidence," he concluded.

Gallagher Bassett is Australia's leading provider of claims and risk management services, helping people and companies prevent, manage and overcome the impact of risk.