Australia pays a high NatCat price

Compared to other nations around the globe, Australia faces outsized costs for climate related catastrophic events like floods, droughts and wildfires as highlighted in the recent Insurance Catastrophe Resilience Report 2024–25 issued by the Insurance Council of Australia¹.

Among similar developed countries, Australia has consistently placed at least second for per capita economic and insured losses stemming from severe weather occurrences between 1980 and 2020. This upward trend is clear, fueled by several factors such as a shifting climate, increasing populations in at-risk regions, and infrastructure not designed to endure the effects of a changing climate. Currently, extreme weather events cost Australians around $4.5 billion annually.

The consequences are intensifying as communities face recurrent extreme weather occurrences without adequate time to recuperate and invest in robust infrastructure – a trend especially pronounced over the last half-decade.

Insurance costs are also affected by global reinsurance options. Despite Australia’s geographic isolation, its insurance sector is deeply integrated into an international network. When global reinsurers experience a rise in claims from significant events, such as hurricanes in the US or floods in Europe, the price of reinsurance can increase globally, and these elevated costs are then transferred to Australian insurers.

2025 - the year when Alfred hit

Australia experienced the rare tropical Cyclone Alfred in March 2025 which impacted densely populated areas and tested insurers' readiness. Insurers leveraged data and tracking to identify at-risk customers and provided early communication regarding the claims process.

Insurers' substantial investment in data and tracking proved crucial during this preparatory stage, enabling them to identify customers likely to be affected by the event. Direct communication with customers potentially impacted by extreme weather is now a standard practice, with those in Alfred's projected path receiving advance information, including details about the claims procedure.

The Insurance Council officially recognised ex-tropical Cyclone Alfred as an insurance catastrophe on March 9. This led to a coordinated industry effort to prioritise claims from those impacted. Following the cyclone's arrival, insurers experienced a rapid rise in claims, with over 34,000 submitted by March 12. To manage this surge, insurers dispatched extra assessors and established recovery centers at 13 safe locations, including Brisbane, the Gold Coast, Hervey Bay, and the Northern Rivers area of New South Wales.

By September 2025, more than 71% of claims were evaluated and settled, with property claims constituting the majority of both individual and business claims. Cyclone Alfred is characterised by a high number of lower-value claims, with an average claim of $11,000.²

How technology supports NatCat claims management

Accenture's "Transforming Claims and Underwriting with AI" report³ indicates that between 2022 and 2027, up to $170 billion in premiums globally are at risk due to unsatisfactory claims experiences. Among claimants who were unhappy with their experience (31%), the primary issues were the speed of settlement (60%) and the complexity of the closing process (45%). This dissatisfaction directly leads to customer churn: 30% of dissatisfied claimants switched insurers, and an additional 47% were considering doing so.

Insurers have traditionally reacted to claims only after losses have occurred. However, this approach is rapidly changing. Modern digital insurers are now using predictive and IoT-driven models to proactively prevent or resolve claims more quickly, which helps reduce costs and improve customer satisfaction.⁴

Modern technologies are transforming insurers from simply covering financial losses to actively supporting people during traumatic events. Insurance companies are increasingly investing in drones and robots to quickly send images and information back to claims offices, avoiding dangerous situations for adjusters.

Advanced claims systems combined with augmented and virtual reality, allow claimants or field adjusters to report damages and settle claims rapidly by uploading pictures and details. This generates 3D "digital twins," enabling claims managers to assess the scene from their computers.

Additionally, leading insurers are using new technologies like parametric insurance to simplify and speed up claims management. Unlike traditional property coverage, parametric policies can trigger payments when a predefined threshold is met, such as acres burned in a wildfire or water levels during a flood event, rather than relying on physical asset damage. This offers a cost-effective way for insurers to streamline catastrophe response by automating payments, especially when a high volume of claims might otherwise overwhelm their capacity.⁵

Insurers step up for resilience

Insurers are well positioned to assist communities in preparing for and adapting to climate disasters by equipping them with essential tools and knowledge. By analysing collected data, insurance companies can advise against poor development choices, such as constructing tall buildings in areas prone to coastal flooding, and instead promote the creation of resilient infrastructure designed to counteract rising sea levels.

Insurers can also proactively engage with property owners, informing them of their property's condition and potential hazards. This proactive communication, for instance, by highlighting problematic vegetation or nearby wildfire risks, empowers insurers to avert disasters, thereby conserving time, money, resources, and potentially saving lives.⁶ Property risk scoring can enable insurers to be THE trusted risk advisor to their customers - backed by accurate and proven data.

Innovation and culture are key elements to enable resilience as illustrated by this example from Insurance Australia Group (IAG) which has gone through a transformation of their systems and their way of working in order to achieve superior customer service in the face of extreme weather events. They empower their employees to be change agents and transform NatCat claims.

With a single claims platform, IAG provided their teams with the tools for automation and innovation. A culture of inclusive innovation encourages individuals in the organisation to come up with new ideas, believe that everyone can make a real difference and deeply care about making the world a safer place.

In a keynote presentation at the annual Guidewire conference Connections 2024, Neil Morgan, COO of IAG shared the story of IAG’s Heng Wong, claims automation agent, and how he created a bot for customer claims service and reduced service time from 20 minutes to 90 seconds, becoming an agent of change. He was able to do this because technology has been democratised -innovation is no longer confined to IT; anyone can create new solutions. For IAG, navigating this rapidly changing landscape depends on language. It’s fundamental to building shared understanding and inspiration, and sits at the heart of both storytelling and AI.

Conclusion

In the face of escalating natural catastrophe events, Australian insurers are fundamentally changing their approach to claims handling. By leveraging advanced technology, from predictive modeling and drones and connecting these to core platforms, they are moving beyond a reactive model to one that is proactive, rapid, and customer-centric. This technological transformation, coupled with a renewed cultural focus on innovation and community resilience, positions the industry not just to mitigate financial loss but to empower property owners, speed up recovery, and ultimately help build a safer, more prepared Australia.