Climate risk and the new standard of proof in Australian insurance

That shift is one of the themes emerging from Drova's Insurance Outlook Report 2026, which brings together perspectives from across the Australian insurance sector on how rising regulatory expectations, climate risk, and operational resilience are reshaping the industry.

The report examines how insurers are responding as sustainability and governance requirements tighten, and how resilience, third-party risk, and scenario planning are becoming central to risk conversations.

Against this backdrop, insurers are increasingly engaging with how climate-related and other systemic risks affect operations, governance, and customer outcomes - not just how those risks are disclosed.

The report reflects an industry under pressure to demonstrate preparedness in practice, not simply intent on paper, as new regulatory expectations - including climate-related disclosure requirements like ASRS - sharpen scrutiny on how risk and resilience are managed.

Climate risk is no longer a standalone conversation

The report makes clear that climate risk is no longer treated as a discrete disclosure exercise. Instead, it is being absorbed into wider discussions about resilience, continuity, and long-term viability.

Interviewees describe a shift away from static documentation toward demonstrable preparedness - not simply having frameworks in place, but being able to show how those frameworks operate under stress. As one contributor puts it, no one wants "policy in a drawer somewhere".

This reflects a broader expectation emerging across regulation and the market: climate risk must be understood in terms of how it affects decision-making, operations, customer trust, and financial outcomes, not just how it is reported.

Governance maturity is becoming visible

A major insight from the report is that governance maturity is increasingly observable through prudential expectations such as CPS 230. Boards and executives are being asked to demonstrate not just awareness of risk, but active engagement with how material risks - including climate-related risks - affect operational resilience and continuity.

That expectation shows up in the way organisations describe their posture: "we are proactively managing our risk in compliance with these standards".

This isn't about perfection. Several contributors acknowledge that many organisations are still building capability, particularly where climate risk intersects with operational resilience and third-party dependencies. What matters is momentum, and credible evidence of progress.

For insurers, this shift is also changing how they engage clients. Rather than acting purely as underwriters, many are taking on a more advisory role, helping organisations navigate regulatory expectations and maturity gaps - sometimes described simply as being willing to "hold the hand".

Scenario thinking is reshaping climate resilience

Scenario-based thinking emerges as a practical way to translate climate risk from long-term uncertainty into operational reality. Rather than treating climate as a distant or abstract exposure, organisations are being pushed to test how climate-related disruption could affect continuity, capacity, and decision-making in the near term.

Instead of broad, theoretical assessments, organisations are being encouraged to focus on plausibility and consequence over defined time horizons. One interviewee summarises the shift succinctly: "What is the risk of something happening over the next 12 months?"

This kind of thinking forces prioritisation. It also exposes the scale of the challenge. Building resilience to climate-driven disruption - alongside cyber risk, supply-chain fragility, and operational dependency - isn't something that can be delivered in a single program or financial year.

Leaders are grappling with a familiar question: "How do you eat an elephant?"

The answer, according to contributors, lies in sequencing and measurement: breaking climate risk into manageable signals, identifying what matters most, and tracking progress through tangible indicators - "These are the sort of indicators that we want to see."

Third-party risk and customer trust are converging under climate pressure

Another strong thread in the report is the growing importance of third-party risk, particularly as climate-driven events place stress on supply chains, service providers, and claims operations.

Insurers - and the organisations they insure - are increasingly being judged not only on their own controls, but on the resilience of the broader ecosystems they rely on.

This has direct implications for customer outcomes during climate-related disruption. The report highlights how expectations are sharpening around clarity, coverage, and responsiveness. Customers want to understand, plainly, "What am I covered for?"

And when extreme weather or other disruption occurs, the expectation is immediate and practical: "I want insurance."

For insurers, this reinforces the link between climate resilience, operational readiness, and trust. The ability to respond quickly and reliably during stress events - when volumes surge and dependencies are tested - is no longer a back-office concern; it is central to brand, reputation, and long-term viability.

Technology, automation and proof in a climate context

The report also explores the accelerating role of automation and AI across insurance, sustainability, and risk functions, particularly as organisations grapple with the data, modelling, and evidence required to manage climate-related risk. But contributors warn that innovation cannot run ahead of governance.

The question facing organisations is not only technical capability, but assurance: "can we ship AI?" And just as importantly: "can we show it's governed, resilient, and auditable?"

This tension - between speed and control - is especially pronounced in a climate context, where insurers are expected to process complex data, respond quickly during extreme events, and still demonstrate control under regulatory and customer scrutiny. The organisations that succeed will be those able to embed governance into innovation, rather than bolting it on after the fact.

From climate risk to readiness

What the Insurance Outlook Report 2026 ultimately makes clear is that climate risk has moved out of the margins and into the core of how insurers think about readiness. It is no longer a long-horizon scenario to be disclosed and deferred. It is a present-day driver of capital decisions, operational resilience, and customer outcomes.

Across governance, scenario analysis, third-party oversight, and technology, the report points to the same imperative: climate risk must be translated into evidence that boards, regulators, and customers can see and trust. That means moving beyond frameworks and commitments, and toward demonstrable capability - tested under stress, monitored through leading indicators, and embedded into day-to-day decision-making.

This is where the shift from policy to proof becomes tangible. Insurers that can bring climate risk into near-term scenarios, link it to operational tolerance and capital exposure, and respond reliably when disruption occurs will be better positioned to maintain capacity, protect trust, and compete over the long term.

As one refrain in the report puts it: "let's raise the bar." In a market shaped by climate volatility and public scrutiny, readiness is no longer just about compliance. It is fast becoming a defining measure of resilience - and a source of advantage for those prepared to prove it.