Australian catastrophes demand shift in emphasis from cleanup to prevention

The half-year results just published by two of Australia’s leading insurers – Suncorp and Insurance Australia Group (IAG) – show the immediate financial impact of the recent spate of natural catastrophes to hit the country. They also show the urgent need for the national emphasis to shift from damage repair and cleanup post-event to loss prevention, risk mitigation and management. Currently, some 97% of disaster funding is spent on repairs and only 3% is spent on prevention and this has to change, argued Steve Johnston, CEO of Suncorp, as he presented the group’s half-year results. Mr Johnston also used the results presentation to call for a wider and deeper commitment to tackling greenhouse gas emissions and global warming, which he argued is the root cause of Australia’s recent crisis. The insurer results were published shortly after a group of more than 250 Australian and international scientists published an open letter that makes a direct link between the catastrophes and global warming, and calls for deep cuts to greenhouse gas emissions. “Scientific evidence unequivocally links human-caused climate change to the increasing risk of frequent and severe bushfires in the Australian landscape. That same science tells us these extreme events will only grow worse in the future without genuine concerted action to reduce global emissions of greenhouse gases,” states the letter. “We, the undersigned climate, weather and fire scientists, call on our country’s leaders and policymakers to develop science-informed policies to combat human-caused climate change. To be successful, these policies must urgently reduce Australia’s total greenhouse gas emissions and lead to constructive engagement and agreements with other world leaders for coordinated global climate action,” it continues. “We call on our leaders to unite to develop non-partisan, long-term policies that will enable the managed transition to net-zero greenhouse gas emissions by 2050 that the scientific evidence shows is required to avoid dangerous human-caused climate change. The science is clear. It is time to show leadership and set a clear path to protect our country and way of life for future generations,” add the scientists. Mr Johnston seemingly backed the scientists by calling for a national response to climate change as he reported numbers that were hit by what he described as an "unprecedented" storm and bushfire season. Suncorp actually revealed a jump in net profits up 156.8% to $642m, compared with the same period last year. But this result was underpinned by the sale of two repairs businesses – Capital SMART and ACM Parts – for $293m. If these extraordinary items were stripped out, the company actually reported a 6.2% fall in net profit from continuing operations to $396m in the first half. The company said it faced seven major natural hazard events during the half-year period, with 42,219 claims lodged in Australia. Mr Johnston said the experience of his company and the sector as a whole suggested that now is the time for action on climate change. "Against a scorecard of lives lost, properties destroyed and saved, and communities torn apart, it continues to be abundantly clear that more needs to be done," Mr Johnston said, according to the Sydney Morning Herald. "For some time, our company has been arguing for a national response to improve the robustness of our private infrastructure and incentives to make our communities more resilient in the face of a changing climate. We know that 97% of disaster funding is spent on repairs and only 3% is spent on prevention. And, those figures don't take into account the community devastation and the incalculable impact on the psychological wellbeing of those involved," continued the Suncorp CEO. During the half-year results press conference, Mr Johnston was asked whether the government's response to extreme weather should extend to divestment in fossil fuels, Mr Johnston reportedly said: "I'm going to leave that commentary to the government." But he added that Suncorp had committed to divesting its less-than-1% exposure to fossil fuel stocks by 2025, stressing that this was a sensible move from a financial, as well as ethical, perspective. "Investment in renewables is where the world will move to. I firmly believe that in the future the renewable sector will be driving the economy, so they're good investments," he reportedly said. Claims from the bushfires and storms exceeded Suncorp’s natural hazards allowance in the first half of the year by $104m. This forced the insurer to buy an additional $200m above its original $820m in reinsurance. Suncorp's net profit in its Australian insurance operation fell by 3.9% to $123m. IAG said the catastrophic weather events had taken a toll on its business performance in the first half. At the end of January, the group revised its reported margin guidance to 14.5%-16.5% after the devastating bushfires and the hail events in Melbourne, Canberra and Sydney. “With the recent heavy rain event in southeast Australia in early February, we have further lowered guidance for the full year to 12.5%‑14.5%, a reduction of 200 basis points, in what is proving to be an exceptionally harsh perils season. We expect the cost of this event will be capped at $135m, in line with our second maximum event retention under our calendar 2020 reinsurance programme. As a result, we have increased our assumption for FY20 net natural peril claim costs to $850m, up from the $715m advised on 24 January,” said the company. Fires continue in parts of Australia, but heavy rains, storms and flooding in recent weeks have helped to douse the flames. Unfortunately, the respite from the flames also comes at a heavy cost. On 10 February, the Insurance Council of Australia (ICA) declared a catastrophe for property losses caused by storms and flooding along the east coast since February 5. As of that date, it said, insurers had received 10,000 claims with the value estimated at $45m – mostly for property damage caused by storm runoff, flooding, strong winds and heavy rain. ICA head of risk and operations Karl Sullivan said: "Insurers expect a large number of claims will be lodged over the next 48 hours as property owners inspect the damage to homes and businesses and contact their insurers. It’s likely many householders are unable to contact their insurers due to telecommunications and power interruptions, but insurers are standing by to help.” The ICA said this was the sixth catastrophe declared in the past five months. In September, bushfires in New South Wales (NSW) and Queensland resulted in 497 claims worth $37m; October's Rappville NSW bushfires led to 255 claims and insured losses of $19m; and more than 20,000 claims worth $1.65bn had been lodged for the November to February bushfires that affected Queensland, NSW, Victoria and South Australia as of 10 February. The ICA also declared catastrophes for hailstorms in November (southeast Queensland – 22,000 claims, $166m) and January (ACT, Victoria and NSW – 69,850 claims worth $638m).

Australian catastrophes demand shift in emphasis from cleanup to prevention

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