The insurance industry is under pressure from climate change and other cost pressures, prompting high-level talks in Europe.
“The protection gap – the difference between the insurance we need and the insurance we have – is worsening around the world,” Insurance Council of Australia chief executive Andrew Hall said on Monday.
Exposure to frequent and significant extreme weather events made the issue more acute in Australia, Mr Hall said.
Home owners, small businesses and professions that require insurance to operate are struggling to afford cover as premiums soar.
Company profits, more disasters, persistent inflation, growing reinsurance costs and scarcer capital are all contributing to the gap between the level of insurance required to rebuild after an event and the amount of insurance purchased.
But without insurance, Australians do not have the confidence to take risks and the economy would grind to a halt, Mr Hall said.
“The needs of insurance customers are at the heart of this exercise because in Australia and around the world insurance is under pressure,” he said.
Assistant Treasurer Stephen Jones will join a delegation this week in London and Munich, where many top firms are headquartered, for discussions with insurers, reinsurers, brokers and industry bodies.
Reinsurance is insurance for insurers to lower the risk of covering a big payout, but is becoming more expensive as disasters strike more frequently and with a greater toll.
Governments are beginning to step in to bridge the gap to make sure households and businesses are not left without cover and to keep the industry afloat.
For example, the risk of cyclones in northern Australia is shared by the federal government under a reinsurance scheme backed by a $10 billion government guarantee.
Mr Jones has said one solution is to make better planning decisions and stop building homes in the wrong places.
The delegation will include Insurance Australia Group CEO Nick Hawkins, QBE Australia Pacific CEO Sue Houghton and Suncorp Group CEO Steve Johnston.
(Australian Associated Press)