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Once a behind-the-scenes player in disaster recovery, insurance is now emerging as a potential force for climate resilience, says �ʹڲ�Ʊ climate risk expert Dr .

Globally and in Australia, insurance has long served as a financial shock absorber for natural catastrophes, like floods, bushfires, and cyclones. 

As extreme weather events become more frequent and severe, insurance costs are rising but, Dr Mortlock says, the industry is adapting. 

Dr Mortlock is an Adjunct Fellow at the �ʹڲ�Ʊ Climate Change Research Centre and Head of Climate Analytics APAC at global insurer Aon.

He facing insurers in a collaborative article led by the �ʹڲ�Ʊ Institute for Climate Risk & Response.

“Insurance has always been about managing risk,” says Dr Mortlock. “But now, it's about managing climate risk, and that gives the industry enormous leverage in shaping our transition to a low-carbon, climate-resilient economy.”

Hazard, exposure, vulnerability

Insurance risk is shaped by three key factors: hazard (the natural event), exposure (what’s in harm’s way), and vulnerability (how susceptible those assets are to damage).

Planning controls that restrict development in floodplains or coastal zones can reduce exposure, but, in Australia, where housing affordability is a national concern, such restrictions often clash with the need to build more homes.

“We have a legacy of development in high-risk areas,” says Dr Mortlock. “And while risk-based pricing discourages further development in those zones, it also makes insurance unaffordable for some homeowners.”

Since the 2011 Brisbane floods, Australian insurers have increasingly adopted risk-based pricing, where premiums reflect the specific hazards of a property’s location.

In contrast, some jurisdictions like California cap insurance premiums to maintain affordability. But, says Dr Mortlock, when insurers can’t price risk accurately, they may exit the market entirely, leaving homeowners unprotected.

Banking on higher risks

The ripple effects of insurance affordability are now reaching the finance sector. Banks, which once assumed insurance would always be available to cover climate-related losses, are rethinking their models.

“Up until about three or four years ago, banks just assumed insurance would be there,” Dr Mortlock says. “But now, that assumption doesn’t always hold. Banks are starting to include climate risk in their credit assessments and loan provisioning.”

This shift is prompting a broader conversation about how to build resilience into the financial system, and the built environment.

Building a resilient future

To reduce vulnerability, insurers are advocating for higher building standards, climate-resilient materials, and smarter planning in hazard-prone areas. 

Some insurers now offer premium discounts for homes retrofitted to withstand bushfires, floods, or cyclones. Banks are stepping in too, offering resilience loans to help homeowners finance these upgrades.

“These kinds of initiatives are critical,” Dr Mortlock says. “They don’t just reduce risk, they align the housing and insurance sectors with climate resilience goals.”

Better data is also helping. With more accurate, property-level information, insurers can distinguish between actual and perceived risk, leading to fairer pricing.

“High premiums often reflect uncertainty, not necessarily high risk,” Dr Mortlock explains. “The more we know, the better we can price, and the more affordable insurance becomes.”

De-risking the green transition

The energy transition requires trillions of dollars in capital to fund renewable projects like wind and solar farms, energy storage systems, and carbon capture technologies. 

These investments carry inherent risks – technical, financial, and climatic. Insurance plays a critical role in making these risks manageable, Dr Mortlock says

“Without insurance, capital won’t flow,” says Dr Mortlock. “Investors need certainty, and insurers provide it.”

Dr Mortlock notes that insurers are already helping underwrite emerging technologies.

“This is where insurers are becoming active participants in the transition,” he says. “Not just protecting against loss but enabling climate solutions to scale.”

Markers of a global movement

The insurance sector is also beginning to pull financial levers to phase out carbon-intensive industries. 

Over the past five years, many insurers have reduced or stopped underwriting new coal projects. 

This trend is expected to expand, with Australian insurers soon required to disclose the emissions linked to their underwriting portfolios, known as Scope 3 emissions.

“This shift doesn’t mean cutting off high-emissions sectors overnight,” Dr Mortlock says. 

“It means using underwriting criteria to reward transition plans and shift capital away from inaction.”

Translating science to action

In the face of rising climate impacts, ensuring a sustainable and competitive insurance market has become a social and economic priority for Australia’s future, says Dr Mortlock. 

One that requires deeper collaboration between policy makers, industry, academia, and the Australian community.

“My work is really about translating complex climate science into something actionable – for clients, for policymakers, for the public,” he says.

“Often, it’s not the models or data that resonate, it’s how you communicate risk in a way people can relate to and act on. That translation is where real change starts.”

Professor Ben Newell, article coauthor and �ʹڲ�Ʊ Climate Risk & Response Institute Director, emphasises the vital role of partnerships between industry and academia in addressing climate challenges.

“Collaborative, industry-informed research allows us to spot emerging risks and opportunities early and respond with solutions that are both practical and powerful," says Prof. Newell.

“We have an incredible wealth of knowledge and tools to build climate resilience, and we will need them if we’re going to confront the challenge head on.”