The Australian Bushfires & Their Impact on the Insurance Industry

In recent months, Australians have come face-to-face with some of the most catastrophic bushfires in history, spreading devastation across the nation.

During the 2019-2020 bushfire season, fires have ravaged through more than ten million hectares of land, taking the lives of at least 29 people and leaving over 2,000 homes destroyed in their path.

The harrowing consequences of this national disaster will likely be endured well into the future, with the bushfires pushing more than one hundred threatened species towards extinction. It’s now expected that more than one billion animals have perished.

Recently, significant rainfall across Victoria and New South Wales has aided fire fighters in establishing greater control of the fires and the speed at which they are spreading. This has, in turn, dramatically reduced bushfire activity in impacted areas. However, as of January the 21st, there were still 87 active bushfires in New South Wales, along with another 17 burning in Victoria.

The Australian bushfire crisis remains all but over, and in the midst of disaster, the threat of further destruction and anguish remains inadmissible.

 

Fears of Underinsurance

Since the 8th of November, there have been over 13,750 bushfire-related insurance claims lodged, totalling more than $1.34 billion in compensation. As further assessments of bushfire impacted communities are made possible, this figure is expected to grow.

However, as homeowners prepare to rebuild, it’s feared that a number of individuals will discover the funds they are insured for are insufficient. With the intention of avoiding expensive premiums, many people opt for a lower sum. While this may save costs at the time, when disaster strikes, individuals can find themselves underinsured.

Underinsurance can be particularly damaging for communities, leaving claimants without the required funds to start rebuilding their properties.

In some instances, when taking out their insurance, homeowners also overlook the need to rebuild in accordance with new bushfire standards. This can require more expensive materials and, ultimately, adds further strain on those who are already experiencing significant losses.

 

Response from Insurers

In a bid to stop people in affected towns panic-buying insurance, Suncorp and IAG have embargoed 67 areas across Victoria and New South Wales. This means that various brands, including AAMI and CGU, will no longer be supplying those in certain locations with new policies, additional cover requests until the embargo is lifted. The number of embargoes in effect is constantly being reviewed and, once it’s determined that the imminent threat has passed, insurers plan to lift restrictions accordingly.

However, not all insurers have boycotted bushfire-prone areas, with providers such as QBE continuing to offer cover to locals from threatened towns.

 

Reinsurance Implications

Despite the sheer magnitude of the ongoing bushfires, it’s expected that their impact on reinsurance will not exceed that of previous events.

Large remote areas were hit the hardest by the fires, and in the majority of instances, less than 10,000 people resided in affected towns. The current bushfire has left one property exposed every 4.5km2, compared to more than one every 1km2 during prior significant fire seasons (ACT in 2003, Victoria in 2009, NSW in 2013).

The terms of reinsurance contracts impose certain limitations, such as those relating to the total duration of the disaster and the distance or territorial boundary covered.

Due to these conditions and the circumstances surrounding Australia’s ongoing bushfires, it’s expected that reinsurance costs will not be as substantial as prior, similar cases. For instance, Black Tuesday and Black Saturday, where insured loss totalled $2.16b and $1.76b consecutively.

If you have any queries regarding the topics discussed in this article, please speak with your insurance advisor.

 

Sources

https://www.insurancebusinessmag.com/au/news/breaking-news/aon-reveals-impact-of-the-australia-fires-on-reinsurance-210475.aspx

https://www.dailytelegraph.com.au/bushfiresupport/fathers-son-newlyweds-21-lives-lost-to-nsws-deadly-bushfires/news-story/0ba931abc7ce3f1bac820429873b75c2

https://www.cnet.com/how-to/australian-fires-everything-we-know-about-the-crisis-and-how-you-can-help/

https://www.insurancenews.com.au/breaking-news/underinsurance-fears-flagged-as-bushfire-losses-hit-1-34-billion

https://www.theguardian.com/australia-news/2020/jan/21/australia-fires-has-the-rain-put-out-the-bushfires-and-could-they-flare-again

https://sydney.edu.au/news-opinion/news/2020/01/08/australian-bushfires-more-than-one-billion-animals-impacted.html

https://www.theguardian.com/australia-news/video/2020/jan/22/why-it-could-take-a-century-for-australias-animals-to-recover-from-the-bushfires-video-explainer

Disclaimer

Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.

The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.