Australian insurers turn to AI and collaboration to combat surge in climate claims

As extreme weather events like ex-Tropical Cyclone Alfred cause billions in damages, Australian insurers are increasingly relying on AI and industry partnerships to manage soaring claims, balancing technological innovation with human empathy to build resilience.

Australian insurers are grappling with a rising tide of weather-related claims amid increasing extreme weather events, signalling significant operational challenges for the sector. Data from the Insurance Council of Australia (ICA) reveals that in the first half of 2025 alone, claims linked to severe weather events have exceeded AUD 1.8 billion, stemming from over 148,000 incidents. Notably, ex-Tropical Cyclone Alfred has been a major contributor, accounting for more than AUD 1.36 billion in insured losses, alongside extensive flooding in North Queensland and New South Wales. These events have underscored the pressures on the insurance industry to respond efficiently while maintaining support for distressed customers.

The insurance sector faces considerable challenges during such climactic surges, as claims volumes spike rapidly and policyholders seek swift, empathetic responses. Maurice Zicman, Vice President of CX Strategy at TP in Australia, highlighted the difficulty of expanding operational capacity quickly without compromising fairness or transparency. Traditional claims systems frequently find themselves overwhelmed during these periods, driving a growing reliance on intelligent technologies to bolster human efforts.

Artificial intelligence (AI) is emerging as a crucial tool in managing these operational demands. Increasingly, insurers employ AI-driven triage systems to prioritise urgent claims, automation to handle straightforward cases from lodgement through to settlement, and predictive analytics to anticipate spikes in demand informed by weather patterns. According to a white paper by Gallagher Bassett referenced by Zicman, nearly 90% of Australian insurers have integrated AI into their claims processes—a 38% increase from the previous year. However, Zicman stresses that technology must complement, not replace, the empathy and nuanced judgement of human claims professionals to effectively support customers during times of crisis.

Fraud prevention represents an additional layer of complexity. The Insurance Fraud Bureau of Australia estimates that fraudulent claims cost the industry up to AUD 2.2 billion annually, with disaster contexts often presenting more opportunities for inflated or fabricated claims. Insurers are increasingly deploying AI-powered fraud detection tools, including image forensics and behavioural analytics, to identify suspicious activity early. Yet, the balance is delicate, as overly aggressive detection risks alienating genuine claimants already under distress. Outsourcing customer experience management to specialist providers capable of scaling operations and optimising self-service channels has become a strategic approach in managing these pressures.

Beyond immediate claims management, insurers are investing in broader resilience strategies aimed at readiness for future extreme weather events. This involves expanding surge capacity, forming inter-insurer agreements, and strengthening collaborations with government agencies, emergency services, and community organisations. Operational flexibility measures include redeploying staff, leveraging AI to manage volumes, and pre-positioning assessors in high-risk locations to facilitate a rapid response. These efforts aim to enhance both efficiency and customer trust, particularly vital given the trauma many affected individuals experience.

Technological innovation is balanced with a human-centred approach, often described by Zicman as a “high-tech, high-touch” model. While digital tools can expedite claim processing, they cannot offer the empathy, active listening, and clear communication necessary for supporting people facing loss and upheaval. Maintaining these human qualities is crucial in building trust throughout the claims journey.

From a wider industry perspective, the growing influence of climate factors on claims patterns calls for the integration of climate data directly into operational planning. Automating routine claims enables human expertise to be allocated more effectively to nuanced cases, while increased collaboration across insurers is advocated to bolster fraud prevention efforts without compromising customer relationships. Moreover, creating resilience frameworks that connect insurers, government bodies, and communities is seen as essential for preparing for the compounding impacts of extreme weather events anticipated in the future.

Supporting these industry efforts, the Australian government has introduced financial assistance measures for those impacted by ex-Tropical Cyclone Alfred, including up to 13 weeks of income support and one-off disaster payments. These moves underscore the broader societal impact of climate-driven catastrophes, with over 230,000 households reported without power and continuing flood risks even as weather conditions ease.

Industry data also points to the scale and persistence of this crisis. Over recent years, the average annual cost of extreme weather claims has more than doubled to AUD 4.5 billion, driven largely by flooding. Despite a rise in total premiums collected by insurers—from AUD 50 billion in 2012 to AUD 86 billion in 2023—profits have remained flat, reflecting the pressure on the sector’s financial sustainability.

In Queensland, claims linked to Cyclone Alfred alone have topped AUD 1.2 billion with over 116,000 claims lodged, around 37% of which have been settled. The Australian Reinsurance Pool Corporation (ARPC) has confirmed readiness to handle reinsurance claims arising from the cyclone, working alongside insurers and government agencies to support recovery efforts.

As extreme weather events grow in frequency and severity, the evolving insurance landscape highlights the imperative to blend technological innovation with human empathy and collaborative resilience-building. The sector’s ability to adapt will be critical not only in managing financial impacts but in sustaining trust and support for communities facing the realities of a changing climate.

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Source: Fuse Wire Services