Australia’s insurance sector faces stark and divergent futures, according to new modelling commissioned by the Australian Prudential Regulation Authority (APRA) as part of its second climate vulnerability assessment.
Prepared by Oxford Economics Australia, the report outlines the economic fallout of two climate scenarios: one where current emissions policies are maintained, and another where strong emissions reduction policies are delayed until 2030. Both paths, the report warns, pose serious challenges to the affordability and accessibility of household insurance across the country.
Under the “Delayed Transition Scenario”, emissions continue rising until 2030 before steep mitigation policies kick in. These include direct or indirect carbon pricing, prompting a sharp economic correction. Australia, heavily reliant on emissions-intensive industries, feels the pinch.
“Emission intensive sectors such as coal and gas mining, manufacturing and livestock farming face the greatest challenges,” the report states. States like Queensland and the Northern Territory—where coal and livestock dominate—are expected to suffer disproportionate economic shocks.
Real household disposable income drops significantly in the 2030s due to slower economic growth and a spike in inflation, but begins to recover in the 2040s as investment in clean technologies lifts productivity and reduces exposure to emissions pricing.
Despite this recovery, household income levels never return to what they would have been without climate change. “Economic activity remains below the counterfactual scenario through to 2050,” the report notes.
The “Current Policies Scenario” paints an even grimmer picture. With no new emissions policies, global warming reaches 2.5°C by 2050. The resulting surge in extreme weather events causes “continuous and compounding physical damage” to the economy, according to the report.
Capital is repeatedly diverted to rebuild damaged infrastructure—roads, machinery, and homes—at the expense of productivity-enhancing investments. Inflation rises as supply chains falter and the nation’s economic output shrinks.
“Weaker economic activity puts severe pressure on real household income through lower rates of employment and higher inflationary pressures,” the report finds.
Regional Queensland is singled out for its acute exposure to these risks, especially in areas dependent on manufacturing and transport. Incomes in towns such as Gladstone and Clinton-New Auckland are forecast to fall dramatically. Meanwhile, WA’s mining industry is tipped to perform better due to relatively lower exposure to climate shocks.
At the heart of the analysis is a looming threat to insurance accessibility. As incomes drop and climate risks climb, insurers are left juggling rising claims and falling customer capacity to pay premiums. The study’s granular modelling—down to the SA2 regional level—reveals that many already vulnerable communities are likely to be hit hardest.
For instance, in the Delayed Transition scenario, mining towns in central Queensland such as Moranbah and Nebo show the deepest income declines, driven by their heavy reliance on fossil fuel extraction. In the Current Policies scenario, regions exposed to floods, fires, and heat stress are at risk of being priced out of the insurance market entirely.
The findings underscore the double bind facing the insurance sector: act now and absorb transition costs, or delay and confront deeper, systemic economic damage later. For insurers, the implications extend beyond underwriting—affecting risk pricing, capital allocation, and customer retention.
The report does not advocate a particular policy path, but it makes clear that the status quo carries significant costs. APRA’s ICVA is expected to inform regulatory and industry decision-making in the years ahead, particularly as climate change continues to reshape Australia’s physical and financial landscape.
“This is a hypothetical view of the world,” the authors stress, “but one that tests resilience in the face of credible, if challenging, futures
