Flood and cyclone insurance – can landlords get cover? 

Every year, large areas of the country are ravaged by natural disasters including bushfires, storms, floods and cyclones.

The events take a huge toll on those caught up in the disaster, with individuals and communities often taking years to recover from a single event.

It also has an impact on the insurance market. 

Cost of floods and cyclones

While some parts of the country occasionally suffer a disaster, other areas are repeatedly hit – or are likely to be.

The fact of the matter is, there are regions that are disaster-prone.

In particular, there are areas that are flood-prone and others that are cyclone-prone.

It is these disaster-prone areas that are of particular concern to the insurance industry.

Some of the most devastating floods in our history have occurred in the past decade or so, including the February/March 2022 floods that impacted South East Queensland and Northern NSW. 

According to the Insurance Council of Australia (ICA), it was the costliest natural disaster in history, with insured losses topping $6.1 billion across 243,000 claims.

The ICA also notes that flood events accounted for more than 54 per cent of losses from declared insurance events in the past five years, and 2022 was a record year for flood losses, with more than 300,000 flood claims totalling more than $7.4 billion.  

The top 10 most at-risk areas for floods are on the east coast.

Brisbane and Townsville in Queensland have that state’s highest flood risk and, in NSW, the Central Coast, Clarence Valley, Hawkesbury, Kempsey, Lismore, Shoalhaven, Tweed and Wollongong are the most flood-prone local government areas.

While the 2022 east coast flood has taken the mantle as the costliest natural disaster on record, a couple of cyclones have also resulted in gigantic losses.

Cyclone Tracey in 1974 caused $5.04 billion in insured losses in Darwin and 1967’s Cyclone Dinah left a $4.69 billion insurance bill along the southern coast of Queensland and Northern NSW.

Every year, an average of 11 tropical cyclones develop over Australian waters.

Of these, typically four will make landfall, bringing destructive winds of more than 280km/h and flooding.

So far this disaster season (November to April), one cyclone has been declared an insurance catastrophe – Tropical Cyclone Jasper, which caused severe weather and flooding in regions in Far North Queensland.

Cyclones are mostly experienced in north-west Australia, between Exmouth and Broome in Western Australia, in the Northern Territory, and in North East Queensland, between Port Douglas and Maryborough.

WA’s north-west is the most cyclone-prone region in the country.

Historical records from the Bureau of Meteorology date back to 1970 and show that there have been more than 530 tropical cyclones recorded in just over 50 years.

The ICA notes that the cost of insurance claims for tropical cyclones since 1967 stands at $23 billion. 

Insurance industry response

Billions of dollars in insured losses are paid out annually and, with the frequency and severity of natural disasters increasing, the losses sustained by insurers are set to continue and increase.

Considering this, the insurance industry has had to re-assess the viability of continuing to offer cover for high-risk properties.

Several insurers have not offered flood cover for property in flood-prone areas for several years.

And if they did, the recent flood events have led some of these to adjust their flood cover – either by ceasing it or substantially increasing premiums.

Meanwhile, the availability and affordability of insurance for property located in cyclone-prone areas has also long been an issue.

Until the introduction of the Northern Australia Cyclone Reinsurance Pool, there was barely more than a handful of insurers offering cover above the 26th parallel – and the premiums, when cover was offered, were incredibly high. 

The Northern Australia Cyclone Reinsurance Pool, which came into effect on 1 July 2022, sees the Federal Government taking on some of the risk of insuring properties.

This will enable insurers to provide more accessible cover for households and small businesses with high cyclone and related flood damage risk. 

Participation in the pool is mandatory for general insurers with eligible policies.

All major general insurers were required to join the pool by 31 December 2023.

Smaller insurance providers, like EBM RentCover, have until 31 December 2024 to join.

Changes to EBM RentCover flood cover

Since 2015, EBM RentCover has automatically included flood cover for all policyholders.

And, we have done so at a competitive price. 

However, EBM RentCover can no longer continue to offer flood cover for high-risk properties – not given the losses incurred over the last few years, the modelling of future losses and the costs associated with offering the cover.

From 1 December 2023, EBM RentCover stopped providing building cover for high-risk flood prone properties.

The level of risk is determined using flood maps and historical claims data.

If your landlord clients own a rental outside of a high-risk area, it is business as usual.

They can take out or renew any of our landlord policies including those with building cover and still have flood cover automatically included.

If your landlord owns a high-risk property, they can no longer take out or renew any of our landlord policies with a building cover component.

That’s because our policies automatically include flood cover.

This means we are not able to issue a policy with building cover with an exclusion for flood cover, or offer flood cover as an add-on. 

Changes to EBM RentCover cyclone cover

All EBM RentCover policyholders have cover for natural disasters including cyclones.

This has not changed.

However, EBM RentCover is yet to enter the reinsurance pool and, until we do, we won’t know what impact the pool will have on policyholders (coverage and premiums).

So, as a temporary measure, as of 1 December 2023 we are no longer issuing new policies with a building component for landlords with property in cyclone-prone regions. 

If you have landlord clients in these areas seeking to take out a new policy with cover for the building structure, you will need to seek cover from another insurance provider at this time.

There is no change for existing policyholders with high-risk property and these landlords can renew their policies with no change in cover, meaning cover for the building will still apply.

Once EBM RentCover enters the reinsurance pool, we will once again be able to offer cyclone cover at an accessible price for all properties in Australia, including those in the cyclone-prone north.

It’s a matter of sustainability

We understand that agents and landlords may be disappointed with our decision to halt offering building flood cover for high-risk properties and to temporarily cease writing new building policies for cyclone-prone properties.

This is not a decision we have taken lightly. But it is a matter of sustainability.

Continuing to provide building cover for properties in high-risk areas is no longer a viable option.

We can and will continue to provide comprehensive cover at a competitive rate for landlords with property outside of flood-prone and cyclone-prone areas. 

We thank you, as always, for working with us and, if you have any questions about these changes, please get in touch with your EBM Relationship Manager.

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