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By Poppy Foxton – National Head of Corporate Insurance & Risk Solutions
Travis Wendt – Head of Placement
Major flooding events across Australia’s East Coast are having a significant impact on renewals, causing uncertainty around rates as initial claims materialise. With more than 168,000 claims already lodged, the Insurance Council of Australia (ICA) estimates the (Catastrophe 221: SE Queensland and NSW Floods) events will hit a record $4 billion in costs. As a result, insurers are likely to continue reducing their exposure in flood-prone areas through increased deductibles, annual aggregated limits, or excluding cover altogether. The long-term impact is of course yet to be seen.
The casualty market continues to underwrite on a case-by-case basis. Underwriters are still seeking small rate increases of 5% for low hazard renewal business, however, for more exposed segments, pricing continues to increase in excess of 30% as capacity declines.
With the frequency and severity of catastrophic events increasing in Australia, it’s pleasing to see significant initiatives featured in the Federal Budget. These include the establishment of a flood and cyclone reinsurance scheme backed by a $10 billion Government guarantee, a provision of $3 billion to accommodate additional expenditure in response to the New South Wales and Queensland flood event(s), allocation of funds to review Commonwealth bushfire funding for States and Territories, and an additional $84.5 million over four years for the Future Drought Fund. While these are all welcome inclusions, we did not see the increased relief for hard-to-place insurance areas we had hoped for, nor measures targeting building warranty schemes to cover larger buildings.
Q4 also marks the beginning of treaty reinsurance negotiations for larger Australian insurers, and these discussions will be dominated by the impact of recent flooding events. While we’re yet to know the outcomes of these negotiations, we expect that any changes to insurers’ treaties (pricing, coverage restrictions, or cost of additional retentions) will be passed on to clients most exposed to risk.
Two class actions have been filed in the Federal Court in relation to the COVID-19 pandemic Business Interruption test cases, but these are expected to be deferred whilst the leave to appeal the recent decision is resolved. As always, we’ll keep you posted with any unfolding developments.
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