Insurance Australia Group, the country's largest vehicle and home insurer, forecast that it would pay up to $720 million in 2012 for catastrophe reinsurance because of disasters such as floods, cyclones and bushfires that hit the country in 2011.

The firm hinted it may raise premiums since IAG even has to pay $100 million more to insure its own book, upping the company's reinsurance coverage for 2012 to $4.7 billion from $4.1 billion in the previous year.

For the Christmas Day storms that battered Victoria, IAG received about 20,000 claims.

IAG said the average rate increase would be between 5 and 10 per cent, but individual risk factors are also considered in determining the new premium. These factors include location, potential building or repair costs and claims history.

From July 2010 to June 2011, IAG paid $620 million in reinsurance costs, expected to go up 16 per cent for the current financial year.

IAG also warned Aussies to prepare for more catastrophic weather caused by climate change. In 2011, Australia and New Zealand accounted for more than one third of the global natural disaster insurance costs. The Queensland floods and Christchurch earthquake alone costs $22 billion.

"Australia is likely to be one of the countries most affected by climate change, with more than 80 per cent of the population residing within 50 kilometres of the coast," IAG pointed out.

The firms warned that these communities are exposed to some of the most damaging extreme weather events such as cyclones, storms, hail and flooding.

IAG pushed for proper adaptation to climate change such as new building codes and land use rules or risk increased insurance cost which could cover becoming out of reach for some consumers and insurers withdrawing from high-risk locations.

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