Author: Mark Hubbard
Since the Black Summer bushfires of 2019-2020, Australia has endured 11 declared insurance catastrophes, with insurers paying more than USD 13 billion in claims1. The increased risk of extreme weather has driven premiums up, leaving insureds with limited options: absorb the cost, reduce their cover or opt out of insurance completely. Spiraling rebuilding costs mean many individuals and businesses also aren’t adequately insured.
In the ICA’s most recent report, it found that the impact of Australia’s worst disasters, such as Cyclone Tracy and Sydney’s giant hailstorm in 1999, would be more severe now due to increased population and rebuilding costs.
Tracy killed 71 people and caused USD 200 million in insured losses in 1974. Yet the ICA said it would cause USD 7.4 billion in losses if repeated today. If adjusted only for inflation, the cost would have been USD 1.78 billion2.
This finding aligns with recent comments made by Lloyd's Chief of Markets Patrick Tiernan, who said several factors were pushing up losses along with climate change - increases in insured values, more of these values existing in high-hazard locations, claims inflation and changes in vulnerability3.
Federal Assistant Treasurer Stephen Jones and delegates from the ICA - including Insurance Australia Group, QBE Australia and Suncorp Group - visited London and Munich in September to discuss how extreme weather is impacting the Australian market and to inform global reinsurers of the steps the country is taking to reduce this risk4.
Clients are becoming more experienced regarding their exposure and understand that protecting their assets requires getting the right mix of insurance, mitigation and resilience. Hall has argued government intervention in the form of lower taxation, tighter planning codes and funding for public disaster mitigation are necessary steps the country must take to reduce the cost of insurance.
To learn how Nat Cat events in different parts of the world are shaping the future of insurance, read the seven-part report, How Is the Increasing Risk of Extreme Weather Changing Insurance?
