ICA calls for abolition of insurance taxes as climate risks accelerate

There has been an undeniable acceleration in natural disaster costs over the past few decades, the Insurance Council of Australia (ICA) warned in its 2024–25 Insurance Catastrophe Resilience Report, released last Tuesday (7 October).

“The acceleration is undeniable. Each decade since 1980, inflation-adjusted losses from floods, bushfires, storms (including hailstorms), and extreme cold temperatures have climbed across Australia, the US, Canada, France, Germany and New Zealand,” the report read.

The ICA said that this trend had been driven by multiple underlying factors, including climate change, expanding populations in climate-vulnerable areas, and infrastructure that wasn’t built to withstand a changing climate.

Over the past five years, extreme weather events have cost Australians around $4.5 billion annually. This was a 67 per cent increase on the previous five-year period, the ICA said. Floods were Australia’s most costly and predictable peril, with around 1.36 million Australian properties at risk of flooding.

The ICA warned that accelerating climate risks were leaving insured Australians in flood-prone areas to contribute “unfairly” to state revenues through the insurance taxes embedded in their premiums.

“The nature of this compounding challenge also means that insured Australians in flood-prone areas contribute unfairly to state revenues through insurance taxes embedded in their premiums,” the ICA report read.

“This is because these taxes are levied in proportion to the cost of the premium, penalising those who pay higher insurance premiums because of the greater extreme weather risk they face.”

The ICA said insurance taxes were regressive as they had an outsized impact on vulnerable households that typically lived in higher-risk areas.

“Across Australia, there’s a clear correlation between high flood risk and socioeconomic disadvantage,” the report read.

“There is generally a higher concentration of residents from lower-income households living in these high-risk locations, with limited ability to relocate or invest in mitigation options to drive down risk.

Insurance premiums in most Australian states and territories (except the ACT) include state-imposed stamp duty of approximately 10 per cent. NSW levies an additional emergency services levy on insurers that is passed onto customers in that state, of approximately 18 per cent.

After peril risk, taxation was the second biggest component contributing to the cost of insurance premiums, the ICA said. It argued that abolishing insurance taxes was the “most effective and immediate way” to bring down insurance premiums.

“Excluding the GST, in 2024–25 states and territories collected $8.9 billion in taxes from insurance customers, which was $1.6 billion more than insurers made in profit that year,” the report said.

“Abolishing these taxes as soon as possible is the most direct way to improve the availability and affordability of insurance.”

The ICA also called for co-ordinated investment in resilience and mitigation infrastructure, land use planning that considered flood and fire risk and stronger building codes. It warned that vulnerable communities were facing back-to-back natural disasters, compounding damage.

“The impact is compounding as communities experience repeated extreme weather events with insufficient time to recover and invest in resilient infrastructure – a pattern particularly pronounced over the last five years,” the report found.

The ICA also warned that international climate risks were placing pressure on the global reinsurance industry, which in turn increased insurance costs in Australia.

In 2024, reinsurance company Munich Re found that global insured losses from natural disasters totalled US$140 billion in 2024. The ICA warned that these costs had direct impacts on Australian insurance premiums.

“Despite Australia’s relative geographic isolation, our insurance market is deeply embedded within a global, interconnected system,” it said.

“When global reinsurers face a surge in claims from large-scale events, such as hurricanes in the US or floods in Europe, the cost of reinsurance can escalate worldwide, with increased costs passed through to Australian insurers.”

Australia has also faced significant direct impacts from extreme weather events, on average ranking at least second place for economic and insured losses per capita from extreme weather events from 1980–2020.

In the 1980s, natural disasters cost Australia an average of US$19 per person, per year, in insured losses adjusted for inflation. By the 2020s, insured losses had climbed to $109 per person – over a five-fold increase.

“For Australia, our persistent position near the top of these rankings reflects our unique geography and exposure to natural perils. While Australia has always faced extreme weather, the increasing losses per person is undeniable,” the report found.