Australian news, and some related international items

Climate change – huge responsibility for banks and insurance firms in property sales

Banks and insurers have huge responsibility when people are buying property in a time of climate change, Online Opinion 

By Kate Mackenzie -, 6 June 2016
“……..In Australia, banks require you to have home insurance before approving a mortgage. Yet they do not check, in subsequent years, whether you are still insured.Our research identified only one example of the banking sector formally addressing their role in relation to housing at risk of extreme weather. In response to a government issues paper following the 2011 floods, banks denied they were at risk themselves, or should play a part in reducing risk through means such as annually checking insurance coverage of mortgagors.

Yet, in climate-related disclosure statements, most big banks acknowledge risk from increasing natural disasters due to climate change affecting their mortgage books. In recent years, some have had to provision for bad debts related to big floods. So far these have been small amounts, but as natural disasters become more problematic, will that always be the case?

The last thing anyone wants is a sudden plunge in house prices in a particular region. Yet it seems inevitable that some housing in vulnerable areas will be repriced. There is anecdotal evidence of this happening already in North Queensland.

To avoid hardship and loss to individuals, we need a concerted effort from all levels of government and all private sector stakeholders, to address the problem.

This is where banks come in. They are an unrivalled player in our economy – constituting the biggest sector of the share market. The big four banks hold about 80 per cent of all mortgages – and their relationships tend to last many years, allowing plenty of opportunity to inform their customers

There is also a social responsibility dimension to the banks’ roles. Contrary to what you might think, not all these exposed home-owners are the wealthy owners of sea-fronted mansions. A big bank might be able to write off a $70 million loss here or there when a flood or other hazard strikes. Individual Australians aren’t so lucky if their single biggest asset takes a hit.

It’s time banks began integrating climate-related risk into their assessment processes – to make good, responsible decisions when granting mortgages and especially financing property developments. As lenders for property purchases, they have the potential to press for good public policy in this regard — and to work towards a good outcome together with stakeholders from civil society and from other parts of the private sector.

Buying and owning a home in a world of climate change heightens the responsibilities of all related players – banks, insurers and governments – at all levels. All play a crucial role. All need to lift their game.

June 8, 2016 - Posted by | General News

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