Australia’s 2022 floods confirmed most costly, inflation a driver

Based on actual claims costs, the Insurance Council of Australia has now updated its estimate for insured losses from Australia’s 2022 severe flooding to AU $3.35 billion.

The data shows that the floods and storms that impacted South-East Queensland and coastal New South Wales in February and March 2022 will become the most severe flood insured loss ever witnessed in Australia.

The AU $3.35 billion of actual claims costs are from 197,000 filed claims across South-East Queensland and coastal New South Wales.

As well as now being the costliest flood loss in Australia’s history, this episode is also the most costly disaster after the Eastern Sydney Hailstorm (1999, $5.57 billion), Cyclone Tracey (1974, $5.04 billion), Cyclone Dinah (1967, $4.69 billion) and the Newcastle Earthquake (1989, $4.24 billion), the ICA explained this morning.

Interestingly, inflationary factors are a driver of higher losses in this case, the ICA said.

The Association said that claims costs are now higher compared to previous floods, due to elevated costs in the Personal Property, Personal Contents and Commercial Property classes, which all reflect the increased cost of materials and a challenging supply chain environment.

This is something to watch out for through the rest of 2022 at least, for insurance, reinsurance and ILS market interests, as the global inflationary environment is not expected to ease quickly, especially while supply chains remain stressed in many parts of the globe.

Inflation, in terms of how claims develop against an event and how much higher-prices become a driver of larger industry losses, is set to become a factor the industry must price for upfront and it needs to get better at forecasting how these costs can escalate, after disasters strike.

The ICA said that 11 per cent of insurance claims from the flooding in Australia have already been closed, with $580 million paid to policyholders so far.

Property insurance claims made up the bulk of the industry loss at almost 170,000 claims, followed by 25,642 auto claims and another 1,158 claims from other business lines.

The ICA’s latest claims filed figure of AU $3.35 billion compares to PERILS AG’s initial estimate of the insurance and reinsurance market loss, which put its initial figure at close to AU $4 billion (close to US $3bn).

Andrew Hall, CEO, Insurance Council of Australia, commented, “We knew that this year’s east coast flooding was one of the biggest floods in our history, but these updated numbers show that in monetary terms it was in fact the biggest ever.

“Only four other disasters have cost more, and this is not a record we want to beat.

“That’s why it’s imperative that governments at State and Federal level commit to a significant increase in investment in programs to lessen the impact of future events.

“We also need to plan better so we no longer build homes in harms way, make buildings more resilient to the impacts of extreme weather, and remove state insurance taxes which only discourage adequate insurance cover.”

Australian insurers IAG, Suncorp and Youi are making claims and recoveries under aggregate reinsurance towers for the flood catastrophe.

Reinsurance capital sources are expected to bear the brunt of these flood losses, according to rating agency AM Best.