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Australian news, and some related international items

Australianb anks, insurance companies, considering the costs of climate change

While those who want to argue whether climate change is real or some sort of Chinese conspiracy, those with real money at risk have moved on. The science is accepted, they have plenty of evidence to back up their own concerns, and now they want to find a way to deal with the financial repercussions.

How climate change will affect your mortgage https://thewest.com.au/opinion/shane-wright/climate-change-is-real-and-its-cost-cannot-be-ignored-ng-b88432001z
Shane Wright, Economics Editor, Monday, 3 April 2017 T
he pictures from the northern Sydney suburb of Collaroy are hard to forget.

Last year, after some extreme weather, a string of houses were left hanging in mid-air. The beach, and backyards, of these homes had simply disappeared.

It grabbed our attention. But it also grabbed the attention of the banks that had lent money to those homeowners and tens of thousands of others who like to live next to the beach.

If you’re a bank, you want to make sure that the people who you lend cash to can repay it.

That means taking into account their income levels as well as the value of the asset they’re purchasing.

There’s not much sense in giving someone a $500,000 mortgage that may be falling in value. In the case of a problem with repayments, and the bank is forced to sell the property, then there’s no chance it will get its money back.

Perfect banking sense. And so it is perfect banking sense to start taking into account the threat posed by climate change.

In the case of the homes on that Sydney beach, if climate change is washing away part of the property then — by definition — the value of that property is falling. Indeed, the property is actually getting smaller as it is swept out to sea.

So you would not be surprised to know that the nation’s banks are starting to look at what climate change might mean to the values of the assets that underpin the best part of $1.5 trillion in mortgages.

There is a growing risk that if your home loses value due to climate change — it’s in a flood-prone area, it’s not very high above sea level, it’s surrounded by increasingly bushfire-prone forests — then how much you can borrow could be curtailed.

You also shouldn’t be surprised that the insurance sector is also looking very closely at what climate change-induced events may mean for its coverage and its fees. 

Thought the annual hike in health insurance — something around 5 per cent a year — was tough to take?

There are suggestions house insurance could go up 20 per cent per annum if some of the forecasts around climate change, and what it will do to certain parts of Australia, come to pass.

While some members of the Government and the Senate crossbench bury their heads on climate change and what it means, sectors such as finance have moved on.

A Turnbull Government minister recently complained about businesses taking into account climate change when looking at investments in areas such as coal.

Thank goodness the minister is only in charge of part of the Federal Government — not a business where they would be held responsible by shareholders and staff for taking such a daft approach to risk management.

The Australian Prudential Regulation Authority is not a hotbed of greenies or anarchists with an aim to end industrialisation. APRA’s job is to make sure our banks and related financial entities keep working.

So when an executive APRA board member, Geoff Summerhayes, recently used an address to the Insurance Council of Australia to talk about climate change, you can’t blithely dismiss it as some sort of ideological fancy.

He pointed out how the world is moving on from the head-in-the-sand approach by far too many members of the Federal Parliament. On top of the Paris agreement, to which Australia is one of 131 signatories committed to limiting this century’s temperature increase to less than 2C, there are a growing number of financial issues that governments and businesses have to take into account.

These include new global recommendations from the Financial Services Board that firms disclose environmental risks to their bottom line so investors, governments and insurers get some idea of what’s going on.

Late last year, the Centre for Policy Development and the Future Business Council released a corporate legal opinion that suggests it is only a matter of time until company directors who fail to reveal and act on climate-related risks to their firms can be held personally liable under the due care and diligence provisions of the Corporations Act.

APRA regularly “stress-tests” the banks to see if their balance sheets could withstand a huge economic downturn.

Soon, it will be testing the banks and insurers on their ability to deal with the fallout from climate change.

Last week’s cyclone Debbie ripped through a known cyclone-prone area where new homes are built to high, cyclone-proof standards.

Insurers are starting to wonder what might happen if, as predicted, such cyclones hit further south in areas where homes are not built to be cyclone-proof. Maybe an area covering south-east Queensland, home to more than three million people.

Imagine the impact of insurers and reinsurers having to cover off the damage that might cause. And the impact on banks whose collateral might be spinning around, Wizard of Oz-like, over the South Pacific Ocean.

While those who want to argue whether climate change is real or some sort of Chinese conspiracy, those with real money at risk have moved on. The science is accepted, they have plenty of evidence to back up their own concerns, and now they want to find a way to deal with the financial repercussions.

It’s a debate the country needs to have. Sky-rocketing insurance costs, for instance, could lead to a vicious cycle of home owners giving up on insurance because it’s too costly which in turn pushes up the premiums of those who hang on to their insurance.

And people without insurance are likely to get taxpayer-funded assistance that will put more pressure on the Budget bottom line. That’s no conspiracy. That’s a clear and present financial danger.

Temperatures in the Arctic through November were 13C above the long-term monthly average. Around Christmas, temperatures in some parts of the Arctic were 35C above normal. If you reckon Santa getting around in a pair of Speedos at the North Pole in the depths of winter is normal, then you really do believe in flying reindeer.

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April 3, 2017 - Posted by | AUSTRALIA - NATIONAL, climate change - global warming

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