Actuaries call for climate and AI budget boost: what it means for insurers
Australia's actuaries want the 2026-27 federal budget to put real money behind climate resilience and AI safety. Five priority areas are on the table, with direct implications for pricing, capacity, and customer outcomes across general, life, and health insurance.
The headline: disaster costs sit at $38 billion a year and could hit $73 billion by 2060 without stronger adaptation. On AI, the push is for capability with guardrails-faster adoption, safer deployment, and local compute to reduce dependency and risk.
Climate adaptation and affordability
Climate adaptation leads the submission. The case is straight: invest upfront in resilience to reduce long-run claims and budget blowouts. "We must invest proactively in resilience measures that protect communities and reduce the long-term fiscal impact of natural disasters," said Elayne Grace, CEO of the Actuaries Institute.
Two practical levers stand out for insurers. First, a National Adaptation Investment Framework to direct funding into mitigation and hardening of assets. Second, removing state-based insurance taxes to ease pressure on premiums, with 15% of households already facing extreme home insurance affordability stress as of March 2024.
AI capability with safety at the core
The submission backs the National AI Plan and an AI Safety Institute to build sovereign capability and reduce systemic risk. Priorities include investment in local AI development, domestic computing infrastructure, and support for adoption in small and medium-sized enterprises.
For insurers, this means safer model deployment, better model validation and monitoring, tighter third-party risk controls, and faster rollout of productivity use cases in underwriting, claims, and fraud. Policy clarity on safety standards would lower operational risk while accelerating practical use.
Health and disability system fixes
Australia's personal risk protection is fragmented across 22 funding mechanisms costing $18 billion annually. Mental health workers' compensation claims cost around four times other claims and have risen 43% over the past decade-pressure that flows through premiums and scheme sustainability.
The institute recommends a comprehensive review of the personal risk protection system and continued focus on NDIS sustainability. That includes addressing workforce supply constraints and implementing new planning frameworks to reduce volatility and improve outcomes.
Life insurance modernisation
A recommitment to a federal product rationalisation framework is back on the agenda. The goal: allow customers in legacy products to move to contemporary products with appropriate protections.
For life insurers, clean product migration reduces administrative drag, improves value for money, and can cut complaint risk. For distributors, simpler product sets make advice and compliance cleaner.
Intergenerational equity and housing
Housing affordability and tax reform round out the five-point plan. Rising house prices relative to wages create intergenerational pressure, while climate-driven price declines in high-risk regions could add geographic inequity.
That split matters for P&C portfolios. You'll see uneven exposure by postcode, growing lender-insurer correlation risk, and heightened pressure on availability and affordability in high exposure areas.
What insurance leaders should do now
- Portfolio exposure: Map property and SME books against hazard projections and adaptation funding scenarios. Prioritise regions where resilience projects could materially change loss ratios.
- Pricing and affordability: Model premium impacts from removing state taxes; prepare affordability strategies for the 15% in extreme stress, including mitigation-linked discounts.
- AI governance: Stand up model risk frameworks aligned to an AI Safety Institute-style standard. Document data lineage, testing, bias controls, and incident response.
- Compute and partnerships: Assess reliance on overseas compute. Explore local capacity and multi-cloud redundancy for critical models.
- SME enablement: Build simple AI adoption playbooks for broker networks and small commercial clients-focus on document automation, triage, and fraud flags.
- Health claims pressure: Tighten early intervention for psychological injury claims. Coordinate with employers and providers to shorten duration and reduce severity.
- NDIS interface: Prepare joint planning protocols where claimant pathways cross schemes to cut leakage and delays.
- Life product clean-up: Identify legacy cohorts ready for rationalisation once frameworks are enabled; pre-plan consent, communications, and fairness tests.
- Property signals: Align pricing and underwriting appetite with local adaptation investments so customers see clear benefits from mitigation.
Why this matters for your strategy
Adaptation funding can bend the loss curve. Pair that with fair tax settings and you create room for capacity to return in stressed markets.
On AI, capability without safety invites model error, privacy incidents, and regulatory headaches. Capability with safety improves speed, lowers cost, and builds trust with customers and regulators.
Coordination is the unlock
The submission notes most priorities require federal, state, and local collaboration. Insurers can add value with granular risk data, clear pricing signals for mitigation, and co-funded resilience programs that reduce losses and premiums over time.
Source: For more detail on the priorities and recommendations, see the Actuaries Institute's work at actuaries.asn.au.
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