Nat-Cat events are hurting Australian insurers' bottom line
GlobalData predicts premium rates in Australia will continue to rise, leading to underinsurance and non-renewal of policies as customers struggle to afford their coverage.
From wildfires to landslides, Australia has seen its share of loss from natural disasters. A recent report from GlobalData demonstrates that climate change-induced natural catastrophic (Nat-Cat) events have driven the amount of claims paid by Australian insurers much higher in just the last few years – with loss ratios climbing from 66.1% in 2019 to 84.6% in 2021.
There were $2.28 billion in losses caused by Nat-Cat events from 2020-2021, says a report from the Insurance Council of Australia. The events detailed in the catastrophe report include:
- The Halloween Hailstorm of October 2020: The storm caused more than $1 billion in damage as cricket ball-sized hailstones fell on the Springfield Lakes area in Queensland.
- The Perth Hills bushfire in February 2021: Eighty-six homes were lost and almost 11,000 hectares burnt when fire broke out in a semi-rural area on the outskirts of Perth. In total, the fire caused $93 million in losses.
- Severe weather in March 2021: After five days of torrential rain, an insurance catastrophe was declared for areas in New South Wales and Queensland. The severe weather lasted nine days total, and caused widespread flooding with a total losses of $652 million.
When it comes to more recent Nat-Cat events, GlobalData references flooding that occurred in February 2022, which caused 118,000 property damage claims amounting to around $1.8 billion AUD ($1.3 billion USD) in New South Wales and Northeast Queensland.
“Due to various geographical reasons, Australia is prone to natural catastrophes, and the frequency of such events has increased recently. In the last two years, the country has suffered wildfires, floods, cyclones, and earthquakes which have resulted in a significant increase in property insurance claims,” Ashish Raj, insurance analyst at GlobalData, said in a press release.
“High Nat-Cat led losses along with the slowdown due to the COVID-19 pandemic has compelled property insurers to increase premium significantly in the last couple of years,” Raj continued. “In fact, some buyers have been billed a renewal price increase of more than 300%.”
GlobalData predicts premium rates in Australia will continue to rise, leading to underinsurance and non-renewal of policies as customers struggle to afford their coverage.
In response to these large Nat-Cat losses, the Insurance Council of Australia has established a Climate Change Action Committee that will collaborate with insurers and other stakeholders to transition the country to a low-carbon economy to limit their climate impact.