Changing weather patterns here and abroad are the biggest risk facing the insurance industry in the coming 12 months according to a recent study.

A survey by the Actuaries Institute of insurance professionals found a quarter of those surveyed placed changing weather patterns as the biggest risk facing the Australian insurance industry, while 18 percent cited regulatory pressures, including tighter capital standards, as the biggest risk.

“Hurricane Sandy is the most recent example, and perhaps one of the most visible examples, of the acceleration in the intensity of natural catastrophes, widely speculated to be caused by the climate change,” said Wotton + Kearney partner Andrew Moore. “This is likely to cause insurers and reinsurers alike to re-think and expand their catastrophe models to reflect this ‘new world’… We expect that one of the main flow-on effects from Hurricane Sandy will be a global hardening of market pricing.”

According to Mark Doepel, insurance partner at Sparke Helmore, local insurers may be concerned as to any impact the U.S. losses may indirectly have on the international reinsurance market as there may be a possibility that losses are spread through future pricing. However, he adds that this seems a remote issue, as “reinsurance cover is usually written on the basis of international zones of exposure”.

Doepel added that the recent events in the U.S. will also heighten the awareness in the local market of whether there is sufficient cover in the market, particularly in the personal and commercial property lines. “The recent bushfire and flood events of the past few years in Australia show that there was a marked degree of both under-insurance and lack of insurance in place,” said Doepel. “The catastrophic losses of Hurricane Sandy may prove a ‘wakeup call’ for purchasers, to ensure they have adequate cover in place and for insurers and brokers to ensure that they have sufficiently explained the cover that is in place.”

Recent events may also cause government entities and local authorities to review their emergency response protocols, to ensure that sufficient guidelines and protocols are in place to deal with events, said  Doepel.

Wotton + Kearney special counsel Matthew Foglia added that catastrophes are to be expected; the question is how severe and where? “If the Australian summer brings further catastrophes that are unusually severe we think we will see even further hardening of market pricing as well as real pressure on insurers to be more selective in the risks they are willing to write,” he said.