Floods expose limited insurance options for farmers

Floods in NSW and Queensland have exposed the need for more insurance options for farmers, who stand to lose billions from damage.

The clean up continued in Lismore on Sunday after record rains and flood hit the northern NSW town. Picture: Toby Zerna

Extreme flooding in NSW and Queensland this week could lead to higher insurance premiums and regions that are practically uninsurable, as insurance companies look for ways to cover potentially billions of dollars in payouts, experts say.

As of Monday, the Insurance Council of Australia said there had been 86,703 claims related to the southeast Queensland and NSW floods, totalling $1.2 billion and rising.

Agricultural insurance expert and Willis Towers Watson account director Russell Mehmet said agricultural losses alone from the floods could go as high as $2 billion.

“Pretty certainly, this event is going to exhaust the insurer limits, which means the global reinsurers are going to have to be paying out,” Mr Mehmet said.

If global reinsurance companies – big retailers who insure smaller companies – were forced to fork out vast amounts of money in payouts, it could have knock on effects for everyday Australians, he said.

“There is the potential for global reinsurance to increase their pricing, which will affect local premiums as well,” he said.

These price changes, if they came in, would likely take effect at the end of the year.

Already agricultural insurance against some natural disasters was very hard to come by in Australia, and companies may reassess which regions they were willing to insure, and which products they were able to offer in the wake of the floods, Mr Mehmet said.

“To my knowledge, there’s no flood cover for growing crops across Australia … and multi-peril crop insurance is virtually unavailable,” he said.

Multi-peril crop insurance was available in Australia until about three years ago, when big payouts from natural disasters led to companies exiting the market, he said.

Experts at Queensland’s Drought and Climate Adaptation Program were looking into alternative insurance products to protect farmers from climate extremes, like parametric insurance, but take-up was still limited, Mr Mehmet said.

Climate Valuation chief executive Dr Karl Mellon said properties in some areas, like the NSW Northern Rivers, were already practically uninsurable due to the high cost of premiums, and any further price increases would leave many Australians without a lifeline when the next natural disaster struck.
“We’ve heard of premiums from $15,000 in some of these places (NSW and Queensland) to up to $30,000 per year for a normal house,” Dr Mellon said.

“People are going uninsured and that’s very, very dangerous because an event like this wipes half the value of a house,” he said.

“We can see these events becoming more frequent.”