Kennedy: We are monitoring it closely. Insurance premiums have been rising rapidly. Both for motor vehicles and for housing.

McKim: I expect that the risk is being smeared across multiple offerings, I think there, is the problem.

Kennedy: There's possibly some structural changes in the motor vehicle side. But let's stay focused on the housing side.

The increase in costs [of housing] we spoke about earlier are an important part of the increase [in housing insurance premiums now].

I want to raise that because I think - and I'll come to the climate risk which I agree with you is increasing and a substantial part of the story - but I do want to raise that also a very substantial part of the near-term story [with higher housing insurance premiums] is simply if the dwelling has increased more in cost, it costs more to replace, and that is a significant part of premiums at the moment.

On the risks associated with climate ... I'm not as gloomy as you in saying that I think the industry is, what did you say? in decline or finished or something?

McKim: I think there's a risk [the insurance industry] will collapse over time.

Kennedy: The insurance industry will re-price risk. If that risk is higher, premiums will cost more.

McKim: Risks will keep going up. I think we can agree on that..

Kennedy: The question for government over time will become more and more the one you raised about, where the private sector is finding it difficult to engage in that risk, and where poorer people are unable to access that insurance because of the risk.

So, for example, if they live in flood-prone areas, I mean the devastation in Spain in recent weeks is terrible..

I think there will be easing in the current rapid increase that we've seen in premiums, I think that will come off. But the longer-term issue will only be solved through mitigation and it will involve the government not necessarily in the market itself, but thinking very carefully about the mitigation...

McKim: The government's already in the market, in Far North Queensland.

Kennedy: They are in the market in those particular areas, that's true. But we should be a bit careful. There's large parts of the market that are still operating effectively. That big costs increases are driven ... [look] if we allow people to build very large and expensive homes in flood-prone areas, or fire-risk areas, then premiums are going to rise, so we have to think very carefully about what our planning is.

But I agree with you that the change in the climate means that those risks are becoming more pronounced, and it means the planning and zoning aspects of it are even more significant.

McKim: The Actuaries Institute has calculated there are $57 billion worth of mortgages under insurance risk, and that's growing fast. Like you basically can't finance a house, if you go out to market to borrow money, you can't borrow money unless the property is insurable. So that means a property can't be sold to anyone except a cash buyer for a range of properties.

What does this mean, in the medium term, for property prices, for stranded assets, potentially for stranded suburbs and stranded towns? 

What do you see as the government's role in this? And what risk does it expose the taxpayer to, given that the government's already in the market?

And is there any other scenario other than the government going into the market in more circumstances and in more areas? I mean, what's the public policy response to this in the medium to long-term?

Kennedy: There will be a need for a government response to what is a significant change that will run through our climate as a result of climate change. There's no doubt. And that will unfold over time. 

I'm not saying there will be no response. I'm just cautioning that, I don't mean it flips entirely to public provision [of insurance], I think there will be a very, very substantial role for ongoing private provision. 

But you are pointing out some of the more extreme circumstances which may become more widespread, which governments, and I'll have to go back to, including state governments, will have to think very carefully about, because we have people living in areas that, as you said, insurance companies are going to find it very difficult to insure.