Climate Risk Assessment Warns of Economic Fallout and Uninsurable Homes by 2050
A recent report from the National Climate Risk Assessment has painted a stark picture of the future, predicting that by 2050, one million homes in Australia will be situated in “very high risk” zones, rendering them effectively uninsurable. This alarming forecast comes as the nation prepares to announce its 2035 emissions reduction targets at an upcoming international climate summit in New York.
The Economic Impact of Climate Change
The assessment highlights a potential loss of property value amounting to $611 billion under a scenario of 2°C warming. Additionally, it estimates a staggering $211 billion in lost wealth due to decreased labor productivity. These figures underscore the broader economic implications of climate change, suggesting that entire regions may become too costly to inhabit, necessitating significant changes in planning laws and insurance business models.
Emma Aisbett, an economist at the Australian National University, emphasized that the projected decline in property values is closely tied to an anticipated economic contraction. “The loss in property value is driven by the contraction of the economy,” Aisbett explained. “Industries are failing, and people are unable to afford homes. The losses from disasters and rising sea levels will only exacerbate these effects.”
The Insurance Industry at a Crossroads
The insurance sector has already raised concerns about its long-term viability in the face of climate change. Insured losses from catastrophic events have surged from 0.2% of GDP between 1995 and 2000 to 0.7% of GDP from 2020 to 2024. The report indicates that 15% of household insurance premiums may exceed four weeks of gross household income, with costs expected to rise for properties that remain insurable.
Aisbett noted that the current insurance model is ill-equipped to handle systemic risks posed by climate change. “When up to a million homes are at risk, the insurance industry, as it is currently structured, cannot manage that,” she stated. “If projects cannot be insured, they essentially cannot be built, as no one is willing to take on that level of risk.”
Ian Dunlop, a former Shell executive and a senior member of the Australian Security Leaders Climate Group, echoed these concerns. He warned that if homes become widely uninsurable, the economic ramifications would be severe. “Once the insurance mechanism starts to break down, we face much larger economic problems across the country,” Dunlop said. “It halts mortgage approvals and slows down relocation processes, creating a serious economic crisis.”
The Broader Economic Landscape
The national assessment did not provide a single figure for the overall economic cost of climate change but detailed various risks. For instance, labor productivity could decline by approximately half a percentage point of GDP due to heatwaves, as the number of days deemed unsafe for manual labor increases. Furthermore, under a 3°C warming scenario, annual tourist numbers could plummet by 14%, as natural disasters lead to canceled or postponed travel. The 2019-20 Black Summer bushfires, which caused a 10-20% drop in tourism, resulted in an estimated loss of $4.5 billion for the industry.
Deloitte’s modeling, referenced in the report, predicts that the total economic cost of disasters could double to at least $73 billion by 2060, representing 4% of Australia’s GDP. Aisbett cautioned that a 4% drop in GDP would have far-reaching implications, making jobs harder to find and lowering incomes across the board. “Some industries may simply cease to exist, and livelihoods will be lost,” she warned.
As the economy contracts, the federal budget will also face mounting pressure. A conservative estimate suggests that federal disaster payments could reach $130 billion over the next 40 years, roughly a third of the cost of the AUKUS submarine agreement. Aisbett noted that this could create a $40 billion annual shortfall in the budget, compounded by losses from unemployment and reduced economic output.
Urgency of Action
Both Dunlop and Aisbett stressed that the figures presented in the report may be conservative. Dunlop pointed out that the exposure to climate risk is occurring “far faster” than previously anticipated. “We are, for all intents and purposes, now above 1.5°C,” he stated. “At this point, various triggers will activate that may not yield immediate results but will become irreversible.”
The report raises critical questions about what society values economically and what can be preserved in the face of climate change. “We must consider what we can defend and what we may have to abandon,” Dunlop said.
Aisbett added that while it may be tempting to dismiss the national assessment as an exaggeration, the reality is far more serious. “The costs-environmental, health, social, and economic-will escalate steeply depending on how many degrees of warming we experience,” she cautioned. “Even if we have surpassed the 1.5°C threshold, we can still make significant strides to minimize suffering by striving to remain below the 2°C or 3°C targets.”
Conclusion
The National Climate Risk Assessment serves as a wake-up call for Australia, highlighting the urgent need for comprehensive strategies to mitigate the impacts of climate change. With the potential for widespread uninsurability and significant economic losses, the time for action is now. As the government prepares to present its emissions reduction targets, the stakes have never been higher. The future of millions of homes, the stability of the insurance industry, and the overall health of the economy hang in the balance.
