The rising cost of nature’s fury and how to help your clients prepare

In the past two years (or thereabouts) Australia has been subjected to no less than eight major natural disasters. 

The floods that ravaged South East Queensland and northern NSW in February and March 2022 resulted in 244,000 insurance claims worth $6.12 billion.

The damage bill from the deluge made this insurance catastrophe the costliest on record.

Then came the severe storms and flooding that hit regions of NSW in July 2022.

More than 23,000 claims were made, with insured losses topping $290 million. 

Just three months later (October 2022), severe weather and flooding inundated parts of NSW, Victoria and Tasmania.

It resulted in almost 23,000 insurance claims valued at just under $820 million. 

NSW copped another battering a month later when parts of the Central West were flooded.

Some 14,800 claims were made, with insurers paying out around $250 million. 

Christmas 2022 saw floods devastate property along South Australia’s Riverlands.

Although only 2600 claims were made, the insured losses for the River Murray floods tallied $435 million.

A hailstorm hit Newcastle in May 2023.

More than 26,000 claims were made, totalling more than $320 million in insured losses.

In mid-December 2023, Tropical Cyclone Jasper wreaked havoc in Far North Queensland (Cape York Peninsula to Townsville).

So far, there has been a damage bill of more than $200 million stemming from a little under 9000 claims. 

Christmas 2023 brought severe storms to regions of Queensland, NSW and Victoria.

Around 71,000 claims have been lodged so far, with the insured losses expected to exceed $540 million.

It would be lovely to say that the spate of natural disasters has ended.

But the reality is that the nation is continually plagued by weather-related catastrophes. 

In fact, between January 2020 and November 2023, almost 788,000 claims, related to 12 severe weather events (including floods, storms and a cyclone), were received by insurers.

This equates to one in 25 adult Australians having made an insurance claim because of wild and wet weather.  

That is an awful lot of us being impacted by natural disasters.

And the sad fact is, due to several factors (not least of which is the impact of climate change), Australia is set to endure more frequent and more severe natural disasters in the years ahead.

With this in mind, what can we learn from the recent events?

First and foremost, insurance is an important part of the recovery process. 

Those eight declared insurance catastrophes racked up claims just shy of $9 billion.

And those are insured losses.

Many more losses will have been uninsured.

For those who were uninsured, recovery will be even more of a struggle as they try to rebuild lives and businesses without the financial support provided by insurance.

The simple fact is, property insurance can be a financial safeguard when the unexpected happens.

That goes for all types of property including home and contents, vehicles and watercraft, business premises, stock and equipment, and – of course – investment properties. 

Owners with rentals impacted by these natural disasters will likely be deploying the safety net that is landlord insurance.

Depending on the policy, the landlord may be covered for damage to the building, to its contents and for loss of rent, if the property is uninhabitable, while repairs are made.  

While having insurance is a wise investment, it brings me to another important point.

The tough reality is, continuing to insure property in disaster-prone areas is unsustainable.

Insurance is designed to protect against unexpected losses from insured events.

When property is in disaster-prone areas, there is a far greater risk of loss or damage – and it is pretty much expected. 

With the frequency and severity of natural disasters increasing, the losses insurers are incurring, particularly from flood and cyclone events, are also rising.

In many cases, the losses are far outweighing the premiums being collected.

Different insurers are responding in different ways.

Some are greatly increasing premiums to include cover for flood and cyclone.

Others are only offering flood and cyclone cover as insurance policy add-ons.

Others still are ceasing to offer flood or cyclone cover at all. 

EBM RentCover has not been immune to the losses from flood and cyclone events.

In recent years, these losses have mounted, and modelling shows that it is only going to get worse.

It has led us to make the hard decision to restrict cover for property in flood-prone and cyclone-prone areas. 

When it comes to losses from floods or cyclones, most of the property damage claims – and costs – are for buildings.

For example, the recent Christmas and New Year storms in NSW, Victoria and Queensland resulted in 70,965 claims valued at $541 million.

Of those, 28,793 claims were for building damage at a cost of $332 million.

Tropical Cyclone Jasper has seen 8068 claims lodged with a value of $202 million.

Of these, 4398 claims have been for building damage, at a cost of $139 million.

As of 1 December 2023, EBM RentCover is no longer writing landlord insurance policies with cover for buildings for any property at high-risk of flood.

We are also, temporarily, ceasing to offer new policies with building cover for properties in cyclone-prone areas.

If you have any questions, please get in touch with your EBM RentCover Relationship Manager.

With insurance for flood-prone and cyclone-prone properties being hard to secure, it is more important than ever for landlords with rentals in these areas (and other high-risk areas like being bushfire-prone for that matter) to be prepared for the disasters. 

If the recent spate of natural disasters have taught us anything, it is that we need to be proactive and prepare.

Talk to your landlord clients and help them to disaster-proof their properties.

The Insurance Council of Australia has tips for preparing properties for floods and cyclones, and state emergency services websites also provide tips and checklists on what to do before, during and after disasters.

Another key to managing the disaster risk is to foster great communication – between you and your agency, your landlords and your tenants.

Being a local area expert, you can share your insights into the natural disaster risks and suggest actions they can take to protect themselves, such as having a disaster plan.

Your experience could be invaluable for landlords who don’t reside in the area or for tenants who are new to living in a disaster-prone region.   

Should a disaster strike, being able to get in touch with each other is imperative.

Be sure your landlords and tenants know all the ways to reach you and your agency, and how to contact each other directly if the need arises.

As your landlords may be relying on you to help them through the disaster, you will also want to have insurance provider contacts handy.

When insurance catastrophes are declared, emergency protocols are activated, and insurers prioritise those policyholders impacted by the disaster.

The insurance provider should be able to offer guidance on what you need to do (such as acting to prevent further loss) and how to go about lodging a claim (based on what losses the policyholder is covered for).

Sadly, dealing with a natural disaster is something that many of us will need to do – for some it will be a one-off, for others it could be a disturbingly regular occurrence.

The recent catastrophes have driven home the value of insurance, but also shone a spotlight on the unsustainability of continuing to offer cover for disaster-prone properties.

We’ve also learned the importance of being proactive in protecting our properties and the value of effective communication. 

Ultimately, the more we learn, the better we can be prepared for when disasters strike.      

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