When it comes to understanding what drives insurable risks and future costs to the state climate change remains firmly in the spotlight. The frequency and severity of extreme weather events impact insurance globally. This is brought into sharp focus here in Victoria, where we’ve seen flooding events affect our clients, especially in regional areas. In October 2022, Rochester and Elmore District Health Service suffered extensive damage and VMIA supported its recovery.
The effects of these severe events, together with a clear public policy direction from Victoria’s Climate Change Strategy, mean the domain of climate risk is now a mainstream topic for government organisations.
“Our role has been to build the confidence of decision-makers and risk professionals by promoting a common language to understand climate change and its effects.”
VMIA, together with Department of Energy, Environment and Climate Action (DEECA), has collaborated to provide relevant resources and tools. This partnership reflects a shared commitment to equip organisations with the knowledge and capabilities needed to navigate climate-related risks effectively.
Understanding Physical and Transition Risks
To understand climate change-related risks, it’s helpful to consider two primary categories: physical and transition risks. Physical risks refer to climate-related events, such as extreme weather, bushfires, or flooding, that directly impact an organisation’s ability to deliver services to the Victorian economy and community. Transition risks, on the other hand, arise from the societal, regulatory, and technological changes required to adapt to or mitigate climate change.
While climate change may introduce new risks, it often amplifies existing risks. This means that the risks already identified within your organisation’s framework may become more severe or probable due to climate change. Importantly, most organisations only need to adapt their existing risk management frameworks to address climate-specific risks, rather than build a whole new approach.
Tools to Support Climate Risk Management
To support organisations to understand and manage climate risks, DEECA developed Victoria's Future Climate Tool (VFCT). Alongside Victoria’s Climate Science Report 2024, published in December 2024, the VFCT allows users to explore climate change projections and help identify possible impacts on assets, operations, and locations across Victoria.
VFCT also includes projections of temperature changes, rainfall patterns, and fire weather conditions, tailored to specific regions. By combining this data with VMIA’s expertise in insurance, organisations can gain a clearer understanding of how climate change may affect them and incorporate this information into their risk management frameworks.
Weighing climate risks and opportunities
Managing climate risks isn’t all about addressing possible harms; it can also present opportunities. In Victoria, the State Electricity Commission is investing in wind, solar and storage and helping households to switch to electric. VMIA is supporting this developing organisation with our tailored risk advisory and insurance expertise.
The Commonwealth Government recognises the need to take a balanced approach to managing climate change-driven risks. It has published the Climate Risk and Opportunity Management Program (CROMP), developed by the Department of Climate Change, Energy, the Environment and Water.
Helping you integrate climate change into your risk framework
Climate change poses complex challenges, but also offers opportunities to strengthen risk management practices and drive innovation.
We encourage our clients to explore resources, including VFCT, VMIA’s own guides and training program, and CROMP (the Commonwealth Government’s Climate Risk and Opportunity Management Program).
For more information on VMIA’s climate change risk management service or DEECA’s Victoria’s Future Climate Tool, please email VMIA at contact@vmia.vic.gov.au or visit our website.
Together, we can build a more resilient and sustainable Victoria.
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