Australian bushfire losses top A$1.65bn as experts warn of further climate-related cats

The insured cost of the Australian bushfires has now topped A$1.65bn based on claims from more than 25,000 insurance policies, according to the Insurance Council of Australia (ICA). The insurer body says that approximately 95% of buildings affected are insured, with a median building sum insured of A$343,241. According to the ICA’s latest update, some 16,011 policies contain, or are specific to, contents cover, indicating that approximately 75% of residents in the impacted regions have purchased protection for their belongings. The median contents cover is A$89,288. A series of destructive hailstorms that struck parts of Victoria, Australian Capital Territory and New South Wales on 19 and 20 January have so far generated almost 56,000 claims with a current insured value of some A$514m, said the ICA. A severe hailstorm that hit communities in southeast Queensland, in particular the Sunshine Coast region, on 17 November generated approximately 22,000 claims as of late December for an estimated value of A$166m, it added. This means that Australian non-life insurers are facing total catastrophe claims of some A$2.33bn from events during the last three months alone, and the figure is still rising. Fires have affected more than 12 million hectares of country this season, including more than five million hectares in New South Wales. The death toll from the fires now stands at 37. Credit ratings agency AM Best last week issued a commentary on the impact of the bushfires. It concluded that Australian insurers are well capitalised with adequate reinsurance protection and should be able to withstand the losses. “Comprehensive use of reinsurance has served to curtail material net loss ratio volatility in most years, and has strongly contributed to the industry’s ability to return combined ratios below 100%, even in catastrophe-heavy years,” commented the agency. But despite the sector’s strong buffers, AM Best expects the recent catastrophic events to “make a dent” in full-year earnings and net loss ratios of the country’s primary insurers. The leading carriers are Insurance Australia Group, Suncorp, QBE and the local operations of international carriers such as Allianz, Zurich and AIG. The scale of the losses will, however, inevitably force reinsurers to rethink their exposure and reinsurance managers can expect tougher renewals in coming months as a result. These losses will also inevitably bolster the resolve of international insurers and reinsurers as they seek to raise prices and tighten wordings in the face of rising man-made and natural catastrophe losses worldwide. “Ultimate destination of losses and the reinsurance coverages triggered remain uncertain as of this writing, but meaningful bushfire losses passed to reinsurers may result in upward pressure on reinsurance rates and tightening of terms and conditions in upcoming renewal windows. Certain areas consumed in the current fires were previously considered as low-risk bushfire zones; managing changes in climate conditions presents a real risk for insurers and reinsurers,” noted AM Best. Brigitte Bouquot, president of French risk management association AMRAE, recently told Commercial Risk Europethat, in her view, risk managers will have to seek ways to protect themselves from the impact of climate change through more active loss prevention and risk management, with greater use of captives as the risk transfer market retreats. Latest scientific evidence supports Ms Bouquot’s warning. The UK Met Office Hadley Centre recently issued a note that explained why the bushfires are happening and what can be expected in future as regional and global warming accelerates. “The recent conditions in Australia have largely been driven by the pattern of sea surface temperatures in both the western equatorial Pacific and Indian oceans, and a sudden stratospheric warming. These events are now occurring on top of a background of continued warming, which is contributing to increases in extremes,” stated the Met Office. “A phenomenon called the Indian Ocean Dipole is one of the drivers of Australian climatic variability, affecting temperature and rainfall patterns… when in a positive phase, ocean-atmosphere interactions in the Indian Ocean lead to cooler water in the east and warmer-than-normal water in the west. This results in the suppression of rainfall in southern parts of Australia, and together with higher than normal temperatures, adds to drought conditions,” it continued. “Work from the Met Office suggests that as the world warms, some areas may become more exposed to higher temperatures and to higher fire danger. At 2°C of warming, models calculate that more areas globally would be at risk of higher fire danger for longer periods compared to today. In southwestern and eastern Australia, where many of the recent severe fires have occurred, 2°C is projected to lead to an additional 20 to 30 days per year on average. In western Australia, there would be up to seven more days per year. The area at risk of ‘extreme’ fire danger in Australia could increase by about 20 million hectares at 2˚C, compared to present day. This is equivalent to an area nearly the size of the UK or the state of Victoria,” concluded the Met Office.

Australian bushfire losses top A$1.65bn as experts warn of further climate-related cats

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