The increasing incidence of natural disaster & impacts of COVID-19 on recovery efforts

The increasing impact of natural disasters continues to be a hotly debated topic in Australia. As we grapple with the issue of climate change and the projected increases to the incidence of natural disasters such as bush fire, cyclone, flood and drought it is clear that Australia’s “Disaster Resilience” will be key to our ability to manage the many impacts of these disasters in the future.

The capacity of government to invest in resilience measures aimed at reducing the impacts of natural disasters has been identified as a key strategy for managing the challenge of natural disasters into the future. The Australian Business Roundtable for Disaster Resilience and Safer Communities White Paper, released in 2013 found that investment of $250 million per year towards resilience measures could save $12.2 billion across all levels of government and halve natural disaster costs by 2050.

The ICA’s recently published Insurance Catastrophe Resilience Report: 2020-21 provides a stark accounting of the financial consequences incurred from recent catastrophes between October 2020 and June 2021 within Australia. The paper also articulates the changes to policy, required by government and the logistical changes required by the insurance sector to better mitigate against the occurrence of natural disasters into the future. Here, we highlight the key findings in this report and reflect on the potential impacts of COVID-19 on disaster recovery efforts as we head into the 2021/2022 natural disaster season.

Recent weather events triggering insurance catastrophes

The increased severity and frequency of major weather events as a result of climate change is undeniable. This in turn impacts on the affordability and availability of insurance available to Australians. The last 12 months alone have seen an onslaught of disasters ranging from cyclone, flood, storm, hail and bushfire. The most recent of these – a hail and storm damage related insurance catastrophe is still unfolding in South Australia.

When a natural disaster of considerable impact occurs, the ICA declares an insurance catastrophe, with the aim of prioritising related claims and directing urgent assistance to the worst impacted areas. The most notable disasters resulting in insurance catastrophes in the past year were the following:

  1. October 2020: Halloween Hailstorm in Queensland’s Springfield Lakes district lasted only minutes but caused more than $1 billion in damage to motor vehicles, roofs, skylights and solar panels as well as interior damage to homes. The huge spike in claims meant an insurance catastrophe was declared the next day however state border closures and restrictions due to the COVID-19 pandemic meant that insurers efforts to get trades to homes once damages had been assessed were seriously delayed.
    Impacts: A total of $1.03 billion in damages. 43,210 claims with an average of $24,000 paid out per claim.

  2. February 2021: Bushfires broke out in Wooroloo on the outskirts of Perth which quickly spread to the whole semi-rural area with 86 homes destroyed and over 10,000 hectares burned. A coordinated clean up response by the State and Commonwealth government saw that affected property owners were treated equally regardless of insurance cover and savings from insurers could be passed on to policyholders to maximise funds for rebuilding.
    Impacts: A total of $93 million in damages. 1,102 claims with an average of $84,000 paid out per claim.

  3. March 2021: Sustained heavy rainfall across most of the eastern seaboard saw rain and flood damage to NSW and SE Queensland. A critical shortage of builders and trades continues to pose challenges for insurers in repairing businesses and homes affected. This issue is further compounded by state border restrictions due to COVID-19 which have largely prevented the local tradespeople being supplemented with interstate workers.
    Impacts: A total of $652 million in damages. 56,358 claims with an average of $12,000 paid out per claim.

  4. April 2021: Tropical Cyclone Seroja was officially named by the Indonesian Bureau of Meteorology on April 5, 2021 maing landfall in the mid -west region of Western Australia the following day. The category 3 storm caused huge disruption to mostly unprepared coastal towns with Kalbarri and Northampton the worst affected. COVID-19 was a key factor hampering recovery efforts with the strict border restrictions imposed by WA impacting insurers ability to deploy disaster specialists to affected sites.
    Impacts: A total of $281 million in damages. 6,751 claims with an average of $42,000 paid out per claim.

  5. June 2021: A severe storm East of Melbourne caused moderate to severe flooding most apparent in Gipplsand and surrounds and the Yarra Ranges. Wind damage and power outages were substantial factors in the disaster with some residents without power until mid July. Once again limited access caused by COVID-19 delayed recovery efforts and the disaster also served to highlight the gap in support between government and insurers relating to fallen trees. Insurers only being liable for fallen trees which have caused property damage, with compromised trees that have not caused damage falling into a “gap” in insurance.
    Impacts: A total of $230 million in damages. 26,578 claims with an average of $9,000 paid out per claim.

  6. October 2021: Severe storms ravaged the East coast of Australia affecting residents in QLD, NSW, Victoria and South Australia. Storm related damage, in large part due to hail, in parts of South Australia has been so extensive an insurance catastrophe has been declared. More than 12,000 claims have been received by insurers as at October 31 with more expected over the coming days. Motor vehicle claims represent two thirds of those lodged so far with crop losses in the Barossa Valley region also expected to be substantial.
    Impacts: Total damages are as yet unknown as claims are still being submitted & assessed.
Changes to the risk landscape concerning natural disasters

Living in Australia we are constantly reminded of the risks natural disasters pose to our communities, livelihoods and assets. Insurance is a key form of protection against these risks. As the above figures highlight, the intensity and frequency of major adverse weather events are increasing and this holds certain implications for insurance. Most notably the affordability of insurance has become an issue, and premiums may continue to rise as insurers attempt to rebalance the ledger following this unprecedented series of natural disasters. See our article here on Northern Australia’s government funded reinsurance pool aimed at addressing property insurance affordability. As this example demonstrates, the role of government – in particular well placed government funding, is crucial in managing the longer term impacts of natural disaster.

Currently, the focus of disaster funding in Australia is overwhelmingly based on “clean-up” ie. after an event occurs. In fact, only 3% of funding has historically been directed to measures designed to mitigate the impact of future disasters. While we have seen some recent announcements which signal a change to this imbalance, we are still a long way from a prevention focused strategy that would see much greater investment in the catastrophe resilience measures needed for long term protection against the impacts of natural disasters.

How will the effects of COVID impact on this year’s disaster season?

When a natural disaster strikes, the local workforce is usually not equipped to deal with the huge spike in demand for services needed to conduct essential repair work and clean-up. As such, supplementing the local supply with outside workers has been a proven strategy for many years. Unfortunately, since the arrival of the COVID-19 pandemic, State border closures have largely put a stop to this practice and seen recovery efforts severely delayed as a result. The ICA has called for policy changes to address this issue which could ensure a plan is put in place for the movement of essential recovery personnel across state borders. Unless a nation-wide response plan is approved, it is feared these delays will be seen again as we head into the 2021 catastrophe season.

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