Even before cyclone Alfred reached the coast of south-east Queensland and northern NSW, the insurance sector was starting to second guess the likely financial impact.
While the south-east Queensland region is no stranger to weather-related events, as a category two cyclone, the damage from Alfred – with its 130km/h winds - is expected to exceed anything the region has experienced in around 40 years.
While the Bureau of Meteorology (BOM) has revised down the storm surge risk for south-east Qld, BOM’s forecaster said intense projected rain remains a major concern.
Two big, listed insurers likely to experience heavy claim volumes are Insurance Australia Group (ASX: IAG) and Suncorp (ASX: SUN), and for the latter Alfred represents its first major insurance event since offloading its bank to ANZ (ASX:ANZ) last year.
Owner of brands like AAMI and GIO, Suncorp has reinsurance protection for up to $6.75 billion for any single catastrophe (CAT) event.
Claims expected to exceed $2bn
The insurer’s CEO Steve Johnston is already preparing for a major surge in south-east Qld and northern NSW flood and damage-related claims in the wake of Alfred next week.
“… typically, the houses here aren’t necessarily built to the same cyclone standards in areas north where there are regular cyclones: There’s a mix of housing stock of variable quality,” said Johnston.
The last round of floods in 2022 resulted in 230,000 claims costing insurers $4.3 billion ¬ around twice as much as the Brisbane floods of 2011.
While it’s impossible to tell if Cyclone Alfred will rival the 2022 event, S&P suspects the cost to insurers could be north of $2 billion.
Based on the rating agency’s numbers, Australia's three largest (property and casualty) insurers have strong credit quality with their maximum event retentions currently representing around 20% of each entity's natural perils allowance.
However, unlike the cyclones of years past, the government-backed cyclone reinsurance pool is now in play.
Established three years ago, the reinsurance pool - which is funded by insurers – is expected to alleviate reinsurance costs. The facility has $10.5 billion ready to cover claims, with the government guaranteeing a further $10 billion.
Flood defence fund
To protect the country’s most at-risk catchments in Qld and NSW – where flood insurance is becoming increasingly unaffordable - the Insurance Council of Australia (ICA) last month called for a Flood Defence Fund (FDF).
The peak body for insurers wants the next federal government to stump up $30 billion to protect homes against an onslaught of climate-fuelled flooding.
The ICA’s recent research suggests the highest flooding risk is from lower socio-economic backgrounds.
The report also found that more than 70% of people at the highest risk of flooding were on a household income of less than $92,000.
Of the estimated 225,000 homes in the highest-flood-risk locations across the country, only around 23% have flood cover, according to the ICA's numbers.
The ICA has identified 24 catchments on the east coast it believes the government should prioritise for flood-mitigation measures.
Break up big insurance
Meanwhile, the ICA’s calls for a flood defence fund follow calls by coalition leader Peter Dutton for a break up of the big insurance companies.
"As we've done with the supermarkets, where we have threatened divestment if consumers are being ripped off, similarly, in the insurance market, we will intervene to make sure that consumers get a fair go," Dutton said.
However, it remains unclear if Dutton’s rhetoric has become official party policy.
Lower claim amounts: wider impact
Meanwhile, ICA data suggests the total premium collected by insurers has grown from $50 billion in 2012 to $86 billion in 2023.
However, due to spiralling costs and the greater frequency of extreme weather events insurer profits have not kept pace.
The ICA report also shows that insurers incurred $2.19 billion in claims from declared extreme weather events in 2023-24, the same amount incurred from extreme weather events over the previous 12 months.
However, the number of claims from events increased by 66,000 in the past 12 months, which suggests the average claim from recent weather events was lower, while the impact was more widespread.
