Insurers to face parliamentary inquiry after 2022 flood response

At $12.3bn, the 2022 floods are the costliest Australian natural disaster for insurance costs ever. An inquiry examine how the major insurers responded.

Insurance company chiefs are set to be hauled before parliament after the Albanese government announced plans for an inquiry into the response to the 2022 floods in which thousands of homes were inundated, with many still to be repaired.

The final terms of reference for the inquiry, to be run by the Labor-controlled House Economics Committee, are still being hashed out, but Assistant Treasurer and Financial Services Minister Stephen Jones has revealed the insurers are to be scrutinised over their responses to the floods, including the delays and bottlenecks in repairs.

Speaking from the NSW central western town of Eugowra, which was smashed by floods last year, Mr Jones said the inquiry would focus on insurers not paying claims or resolving jobs.

“We want to get to the bottom of what’s going on in relation to these flood events,” he said.

“The last thing people need when they’ve lost their home or their business is to be navigating complex claims processes or waiting months for materials and ­labourers.”

The inquiry will also examine supply chain issues, skills and labour shortages, as well as claims handling and communication by insurers with their policyholders during and after the floods.

But Mr Jones said the inquiry would not focus on double-digit premium increases.

“I have one goal in establishing this inquiry, and it is to improve the experience for consumers who have been impacted by natural disasters,” he said.

The Insurance Council of Australia said it welcomed the inquiry into the industry, noting it was also preparing to deliver its own review into the insurers’ responses into the floods in October.

The ICA said its review was looking to “identify lessons learned from insurers’ response to the floods – both from good practice and practices requiring improvement”.

The Insurance Council of Australia said it welcomed the inquiry into the industry, noting it was also preparing to deliver its own review into the insurers’ responses into the floods in October.

It said the federal inquiry should also look at state insurance taxes and the impact they made on “customers’ capacity to appropriately insure, as well as how the impact of past decisions on land use planning and disaster mitigation impact community risk and insurability”.

ICA chief executive Andrew Hall said the 2022 floods “stress-tested” insurers and their systems. “This was exacerbated by issues such as a shortage of expert assessors, building labour and materials constraints, and the complexity of recovery and resilience programs delivered by state governments,” Mr Hall said.

“We strongly support the ­Albanese government’s focus on improving the resilience of Australian homes and communities against extreme weather events, but more needs to be done to ensure insurance remains sustainable as the climate worsens.”

The parliamentary inquiry comes after the Albanese government announced it would put up to $1bn over five years into resilience projects to protect communities from natural catas­trophe risks in a move welcomed by the insurance industry.

Speaking in May, Mr Jones said the government was looking at intervention from the Australian Competition & Consumer Commission over insurance pricing in the wake of the floods.

Mr Jones told an audience of actuaries the insurance sector should be pricing cover differently for more resilient homes.

The series of floods that hit Australia last year triggered huge losses for insurers, with the ICA reporting losses topping $5.81bn.

This came after years of heightened extreme weather, bookmarked with bushfires that swept the country in 2020.

The ICA said the combined losses from these events from 2020 to the end of 2022 exceeded $12.3bn for insurers.

The losses have resulted in a jump in the cost of reinsurance, an additional layer of cover the industry buys to offset its payouts to customers.

Two weeks ago, Suncorp revealed the terms of its new reinsurance arrangements, marking an increase of costs the Queensland-based insurer would have to wear.

Suncorp told investors its maximum retention would soar from $250m last year to $350m, meaning the insurer would now wear an extra $100m of losses before reinsurance kicked in to pick up the rest.

Suncorp’s retention on events in Australia was also increased last year to $150m, from $100m.

Insurance Australia Group, which operates the RACV, NRMA and CGU brands, also signed new deals for its aggregate and third and fourth event reinsurance cover, but the insurer will also have to bear more costs before its cover kicks in.