Insurers brace for hundreds of millions in storm payouts
Claims have already started to pour in but will ramp up in the coming days and weeks and will run into hundreds of millions of dollars, if not tip past $1bn.
Insurers are bracing for hundreds of millions of dollars of payouts as NSW is devastated by once-in-a-lifetime floods.
As torrential rain lashes NSW, the flooding, deemed to be the state’s worst since 1961, has swallowed roads, destroyed homes and triggered evacuations, with further damage expected in the coming days.
For general insurers IAG and Suncorp, there is suddenly a question mark over the prospect of remaining under their natural hazard allowances for the six months through June as they contend with the one-in-100-year weather event.
Claims have already started to pour in but will ramp up in the coming days and weeks and will run into hundreds of millions of dollars, if not tip past $1bn.
Senior banking and insurance analyst at Velocity Trade, Brett Le Mesurier, said the fallout from the wild weather event would be big enough to force insurers to tap their reinsurance cover.
Reinsurance sees insurers transfer portions of their risk portfolios to other companies, to protect against having to pay out large sums from insurance claims.
“It seems to me this will be a significant event that will call on the reinsurers,” he told The Australian.
“The (general insurers) will be using the various reinsurance covers they’ve got to partially pay for this.”
Mr Le Mesurier declined to give an estimate of the potential cost to insurers, saying it was too early to tell.
Floods rank as among the most costly events for insurers, given extensive damage to businesses and households that are impacted by rising waters. At the same time the number of traffic accidents also increases.
Improved flood mapping over the past decade means most major insurance now offer automatic cover for flood, rainwater run-off and storm surge.
After nearly more than $2.4bn in payouts linked to last year’s massive bushfires, insurers have had a relatively benign year with limited cyclone and hailstorm events.
The last major flood payout for insurers was in February 2019 where torrential rains that hit Townsville in far North Queensland, where more than 30,000 claims triggered nearly $1.3bn in payouts, according to Insurance Council of Australia figures.
In February last year flooding across parts of NSW and south east Queensland triggered more than $900m in payouts across more than 100,000 claims.
The Insurance Council of Australia said it was closely monitoring the severe weather and flooding currently impacting large parts of NSW, particularly around the Mid-North Coast and Hawkesbury-Nepean.
“The volume and intensity of rain that has fallen in the past few days has caused damage over a huge area of NSW. Insurers are assisting customers with their claims to help alleviate the stress and uncertainty associated with this unfolding weather event,” Insurance Council chief executive Andrew Hall said.
Insurers had been receiving storm-related claims over the past four days, but the council warned it was still too early to estimate the damage bill due, in part, to the many isolated communities affected.
In response to the severe weather event, IAG, the nation’s largest general insurer, has activated its major response team and deployed extra staff to deal with the expected influx of claims, with property assessors on standby for when the floods dissipate.
“Our priority is to help our customers who have been affected and we have additional resources in place to help our customers get back on their feet,” an IAG spokesperson said.
“We encourage our customers to contact us to lodge their claim as soon as possible so we can organise immediate support such as emergency accommodation.
“For our customers whose homes have been damaged, our priority is ensuring their property is safe.”
IAG houses well-known brands such as NRMA, CGU and Swann Insurance.
As part of its reinsurance cover for 2021, which it finalised in January, it retains the first $250m of each loss before reinsurance kicks in.
For peer Suncorp, its natural hazard allowance for the 2021 financial year is $950m, divided equally between the first and second halves. Its maximum retention per weather event sits at $250m.
A Suncorp spokesman said customers had already begun lodging claims with the insurer.
“Suncorp Group is ready to support customers across all its brands, including AAMI, APIA and GIO, who have been affected by the east coast rainfall and floods.
“While it is early days, we are seeing customers lodge claims online, with Port Macquarie, Dunbogan and Nelson Bay the most affected regions to date,” the spokesman said.
As insurers brace for the looming onslaught of claims, the nation’s lenders are providing emergency banking assistance to customers and businesses impacted by the devastating floods.
CBA, the nation’s largest lender, is offering customised payment arrangements for home loans, credit card and personal loans, and is also providing temporary overdrafts, additional loans and emergency credit limit increases.
It is waiving fees and notice periods for access to term deposits and will fast-track claims for customers with home and contents insurance cover.
“Our thoughts are with everyone impacted and we thank the emergency services who are working to assist those affected by the floods,” CBA retail banking services group executive Angus Sullivan said.
ANZ is pausing payments for up to three months on home loans, credit cards, personal loans and some business loans and is offering temporary rate reductions on loans for customers in extreme financial distress as part of its assistance package.
Westpac, meanwhile, is allowing customers to apply to defer home loan repayments for up to three months and credit card repayments for up to 90 days.
“The record-breaking rain in New South Wales has had a devastating impact on households, businesses and communities, and we want our customers in flood-affected areas to know we are here to help them at this time,” Westpac’s chief executive for consumer and business banking, Chris de Bruin, said.
NAB said affected customers could contact the bank to discuss a range of financial relief measures, including credit card and loan relief.
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