CANBERRA – Australia’s worsening climate change may see insurance companies and banks withdraw their services from communities vulnerable to extreme events, potentially triggering “cascading effects” across the economy, a new government report warned.

The government released its first National Climate Risk Assessment on March 12, highlighting 11 priority areas that were at “significant risk” from climate change, including water security, agriculture and economic resilience.

The assessment showed that pressures on Australia’s financial system from a surge in climate-related disaster claims could lead to a “plausible worst-case scenario” where insurers and lenders pull out of highly-exposed communities.

“Such a shock in the local financial system may have cascading effects on infrastructure and the built environment,” the report said. That could create “vulnerabilities in various communities, with further potential flow-on impacts or pressures on other systems such as health and social support and primary industry and food.”

Australia has already seen a surge in insurance premiums, partly as a result of repeated natural disasters, including extensive wildfires and flooding. 

The assessment also warned of broader international dangers to Australia’s economy as a result of climate change, including surges in migration from badly-affected regions as well as disruptions to international trade routes.

The government will now use the assessment to consult on an adaption plan to mitigate the “nationally significant, physical climate risks” presented in the report, Assistant Minister for Climate Change and Energy Jenny McAllister said in a statement. BLOOMBERG