Bushfires: insurance claims to soar, hitting profits and piling pressure on premiums
Treasurer Josh Frydenberg says $700m in damages has been claimed, amid warnings about a spike in insurance premiums.
Payouts from Australia’s bushfire crisis could top $700m in coming months, knocking insurer profits and heaping pressure on future premium rates, analysts have warned.
The forecast came before today’s meeting between Prime Minister Scott Morrison, Treasurer Josh Frydenberg, the Insurance Council of Australia and insurance industry leaders about how recovery efforts were going.
After the meeting, Mr Frydenberg said 20 per cent of the 8500 insurance claims lodged in relation to catastrophic bushfire damage across the nation had been processed and half had been settled.
Treasurer said $700 million in damages had been claimed through insurance within three months.
Mr Frydenberg said the insurance industry had taken a number of steps to assist those affected by a bushfire season that has claimed 24 lives and destroyed at least 1800 homes.
“They will continue to take steps to ensure that they have the adequate number of people who are there to process these claims and to assess the damage,” Mr Frydenberg said. “These insurance companies are providing a 24/7 service for those who have been affected.” “Importantly, the insurance companies have already lined up builders to start the rebuild process, and what is very pleasing – and I underline this point to the insurance companies today – to prioritise the use of local tradespeople.”
The Treasurer was flanked by Insurance Council of Australia CEO Rob Whelan, who said the industry would “throw all necessary resources” at the recovery effort to ensure customers’ lives are “rebuilt as quickly as possible.”
Earlier, the insurance council said it had handled more than 6000 bushfire-related claims since September worth $431m.
More than 5000 of those claims, worth $375m, were filed between November and January 3.
Brokerage Bell Potter estimates the average payout in the bushfires to come in at $70,000. Payouts will be lower as bushfires move away from more densely populated areas.
Credit ratings agency S&P Global Ratings on Monday warned the claims could top 10,000 in the coming months. Such a figure could see payouts exceed $700m based on Insurance Council Estimates of claims to date.
“We see the bushfire claims, along with the recent hailstorm claims, as likely to exceed insurers' usual natural peril allowances, leading to some moderation in profitability.
“In addition, the events could also pressure premium rates in future as insurers are forced to pass on likely higher reinsurance costs,” S&P said in an analysis of the bushfire disaster.
S&P also expects insurers to be “sympathetic and pragmatic” when assessing claims, due in part to the magnitude of the crisis but also because of the focus on governance and behaviour post the Hayne Royal Commission, the ratings agency predicted.
“While weather-related natural peril events are a real and regular occurrence in Australia, the recent extremes in drought and climate conditions appear to have exacerbated the reach, longevity, and intensity of the current bushfire season”.
“In our view, loss estimates are likely to be at the higher end of initial estimates. That's because we believe insurers will be sympathetic and pragmatic in their assessment of claims, given the magnitude of events and the heightened focus on governance and behaviour in the banking and insurance sectors since the royal commission,” the ratings agency said.
While loss estimates continue to rise, the exposure for individual insurers is at a moderate level and covered by their natural peril allowances and reinsurance, S&P noted.
“Australian insurers can absorb growing insurance claims relating to Australia's bushfires within the current ratings.”
For insurers, flooding and hail storms regularly top natural disaster payouts with costs running into the billions of dollars as the damage can often be over densely populated and large geographical areas.
Ahead of a meeting with the Prime Minister and Treasurer, Insurance Council of Australia CEO Rob Whelan said insurers would offer to help the government develop a national response to the crisis.
“The industry is well resourced to carry out repair and rebuilding work in partnership and collaboration with the community, governments and regulators, the building and construction sector and suppliers.
“Insurers will discuss all aspects of recovery, from assessments and property clean-up to rebuilding. They will also offer their expertise in assisting all levels of government with developing a national response,” he said.
The S&P note comes after Bell Potter and Ord Minnett retained their ratings on IAG following its perils update last week.
Insurance Australia’s Group, the nation’s largest insurer on Friday revealed that its net exposure to the crisis to date was more than $160m, with 2800 bushfire-related claims received up to January 2.
It also said it had increased its catastrophe reinsurance program from $9bn to $10bn this year. It said it was able to increase its cover on favourable market rates.
Bell Potter has maintained its $8.40 price target and buy rating on the insurer, while Ord Minnett retained its hold rating and target price of $7.10. IAG on Monday closed down 1.71 per cent at 7.48.
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