Insurers prepare for flood of claims as NSW disaster declared “significant event”

The insurance industry has stopped short of declaring the NSW floods a catastrophe, but internally many are bracing for a flood of claims as property owners return after waters subside.

JULY 5, 2022: Homes near Mount View rd Vineyard have been inundated by flood waters near the flooded Killarney Chain of Ponds. Picture by Damian Shaw

Insurers are bracing for the fallout of the latest floods to hit NSW, after the industry’s peak body stopped short of declaring the horror weather system a catastrophe.

The latest data from the Insurance Council of Australia revealed almost 1600 claims from policyholders caught up in the latest wild weather.

Insurers escalated their response on Tuesday, moving to declare the floods a “significant event”, with some mobilising disaster response teams.

This comes after an insurer roundtable on Tuesday morning, on day two of floods hitting the Nepean and Hawkesbury river basin in Sydney’s western edge.

The ICA stopped short of escalating the event to a full catastrophe, as the volume of claims and area affected has not hit industry criteria yet.

The NSW government declared the floods a catastrophe on Tuesday morning, making residents in 23 local government areas eligible for disaster relief.

The ICA’s move to classify the disaster as a significant event will see the peak body for insurers step up its data collection and activate its disaster hotline.

Under the preliminary response the ICA will also work with government and agencies to monitor the impact on flood affected communities.

However, insurers are expecting claims numbers to rise, with some moving to mobilise disaster response teams amid expectations of a flood of claims as customers return to damaged properties.

More than 50,000 Sydney residents were ordered to leave their homes, as continued downfalls hit the city.

However, the potential cost of the latest floods comes after earlier waves which hit insurers for at least $4.38bn after more than 225,000 claims.

Insurance Australia Group reported more than 1233 claims by Tuesday, but the insurer is yet to trigger its reinsurance arrangements.

The majority of claims have been related to storm damage to property.

IAG has not triggered a catastrophe declaration, but has mobilised its major events team to respond to the floods.

IAG, which finalised its aggregate reinsurance cover in July last year, is expected to announce its program soon.

The insurer announced in January its 2022 catastrophe reinsurance program would be capped at $10bn, with IAG to retain the first $250m of each loss.

IAG, Australia’s largest insurer, has a maximum event retention of $95m.

Suncorp has flagged a surge in claims and moved to trigger its catastrophe reinsurance arrangements which kick in when the insurer expects losses in excess of $10m.

The internal triggering of the catastrophe declaration also mobilises Suncorp’s disaster response teams.

As part of its recent negotiations around reinsurance, Suncorp doubled its aggregate excess loss cover deductible limits from $5m to $10m.

Suncorp also moved to lift its attachment point on losses from $650m to $850m, exposing the insurer to a higher pain threshold arising from natural disasters.

However, the amount of cover remains at $400m.

Two years of back to back natural disaster losses have proven painful for the insurance sector, with Suncorp noting its reinsurance premiums had “increased significantly”.

Suncorp dealt with 120,000 natural hazard claims in the last financial year, costing it around $1.1bn, net of reinsurance recoveries.

Morningstar analyst Nathan Zaia said Suncorp’s reinsurance program renewal costs would “cost more and be less favourable” to the insurer.

Mr Zaia said he expected reinsurance prices to lift a further 10 per cent in the coming year on the back of further natural catastrophe losses.

“Depending on the frequency and severity of natural hazard events in the next 24 months, it is unlikely reinsurance costs fall either,” Mr Zaia said.

“Capital which has flowed into the industry will begin to demand a higher return due to the higher cash rate environment.”

Originally published as Insurers prepare for flood of claims as NSW disaster declared “significant event”