Insurance and the Bushfire Crisis: Growing Claim Numbers and Insurer’s Response

After a disastrous weekend of bushfires across NSW and Victoria, the number of insurance claims made by victims of the blazes is beginning to stack up, and the public is watching to see how major insurers respond.

In light of the severe deepening of the bushfire crisis, Australia’s major insurers have been called to Canberra for review. IAG, Commonwealth Bank, Westpac, and others are to meet Prime Minister Scott Morrison and Federal Treasurer Josh Frydenberg on Tuesday to ensure a swift and fair response to bushfire claims. Regulatory representatives from ASIC and APRA are also expected to be in attendance.

The national disaster presents a number of challenges for insurers but is by no means expected to be the largest blow to insurance coffers in recent memory.

So far there have been over 6000 claims across the industry since the start of the fire season estimated to be worth around $431 million in damages. The Black Saturday bushfires of 2009 had insurance damages worth $1.7 billion, and the Townsville floods of just last year are believed to have cost $1.24 billion.

However, the figure for this bushfire season is still quite conservative, and likely to rise for the rest of the summer. Not only more losses are on the horizon, but many regions are still too dangerous for residents to return to and assess the damage, as over 100 fires continue to burn. Many more claims are coming, as existing losses are counted, and the fire season continues to worsen. So far, the vast majority of claims have come from NSW, but with some of them have been coming from Victoria, South Australia and Queensland.

Australia’s largest insurer IAG has said that its 2019/20 “perils” claims are already around $400 million, which represents 60% of its annual natural disaster budget already spent. IAG alone has received 1500 bushfire claims since the start of the season, the majority of which are for home insurance. If the bill gets much higher it will mean serious strain for the ASX listed company, which traded at a 6-month low of $7.39 on Monday. IAG’s Australian division CEO Mark Milliner has reassured customers they are ready to meet the needs of bushfire victims.

Mr Milliner said that their main concern was to aid consumers influenced by the terrible events as soon as possible. He further added that they urge their consumers to get in touch at the earliest opportunity if they required to lodge a claim, access emergency housing or ask for other help.

Suncorp, parent group to popular insurer AAMI and others, is facing a similar outlook to its competitor. In a statement released on Monday, Suncorp announced they have also received around 1500 claims since the start of November, “however the full impact will not be known for several weeks until areas are safe to access.” As the possibility of a claim blow-out looms, the insurance group is trading down on the ASX. As of Monday, it dipped as low as $12.70, Suncorp’s worst day of trading in nearly a year. However, on 7 January 2019, Suncorp Group Limited (ASX: SUN) was trading at a price of $13.090, moving up by 2.426% (at AEDT 2: 34 PM).

Treasurer Josh Frydenberg has said that the focus of Tuesday’s meeting would be on ensuring that victims were dealt with fairly and swiftly manner and has flagged the possibility of government support to ensure that happens.

“We will also discuss any support the industry requires to ensure that it can respond as quickly and effectively as possible to those Australians who have suffered losses, and who are now looking to their insurer to process their claims so that they can begin to get back on their feet,” he said.

Those critical of the government’s intentions have suggested that insurance companies are simply the latest to be dragged into the political blame-game circulating the fires. The Australian newspaper reported that senior financial officials have labelled the meeting as a distraction from the government’s widely perceived lack of action in relation to the fires. The Prime Minister has been the main recipient of the nation’s anger for a number of perceived gaffs, such as an ill-advised Christmas holiday to Hawaii and insensitive behaviour towards fire survivors in NSW town Carbago.

On finger-pointing or legitimate enquiry front, there are a number of reasons why insurance review is a good idea in light of the recent disaster.

Some of the same factors that have delayed individuals from making claims on their properties will delay insurance providers assessing and paying out on claims. This is a process that can drag out for months at the best of times and is likely to leave many bushfire victims stranded in temporary or emergency housing, a limbo-type situation which can affect all aspects of day-to-day life. As of yet, insurance assessors are estimated to have attended only 5% of claims.

An even more serious implication of the disaster has been highlighted by the Insurance Council of Australia (ICA), who has estimated that 4 out of 5 properties in fire-affected areas are likely to be underinsured. This means that, of those who have suffered losses due to the fires, only 20% will receive an insurance pay-out adequate to return to the same standard of living that they enjoyed before the fires. Unfortunately, most of the victims will be significantly worse off.

In response to the request for the Tuesday meeting, ICA chief executive Rob Whelan has said his organisation "will reassure the government that insurers are focused on helping all customers who have been affected by the fires". Mr Whelan further stated that disaster claims and relief would be prioritised for the time being, and that insurance industry leaders are “well resourced” to assist in the recovery efforts. However, it is unlikely that insurers will be in a place to support the seriously underinsured, for which government intervention may prove necessary.

If you want to support Australian firefighting efforts by making a donation, you can donate to local state services like NSW Rural Fire Service, Victorian Country Fire Authority, South Australia CFS and Rural Fires Brigades Association Queensland Inc.


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