Floods, storms, bushfires, cyclones – there’s no doubt that Australians and their properties can bear the brunt of Mother Nature. And whether your landlord clients are caught up in a disaster or not, environmental issues can impact their insurance.
A whopping $6.8 billion – that’s the estimated insured losses from this year’s flooding in Queensland and New South Wales.
As the tally continues to mount, the flood event has taken up the dubious mantle as Australia’s costliest natural disaster (the 1999 eastern Sydney hailstorm held the title previously).
But the floods were just one of several major natural catastrophes that our communities have had to face in recent years.
From devastating bushfires to cyclones, hailstorms and even an earthquake, the wrath of Mother Nature has been felt right across the nation.
According to the Insurance Council of Australia (ICA), insurers paid $6.41 billion from more than 380,000 claims across multiple events in FY21 alone – up $3.9 billion on the previous 12 months.
And we’re not alone, globally insured losses from natural disasters topped US$116 billion last year.
The sad fact is the frequency and severity of extreme weather events and natural disasters are increasing as climates change. And this is directly impacting the availability and cost of property insurance.
Research from the ICA revealed that extreme weather events over the past 12 months cost every Australian household an average of $1532.
This sum includes government expenses paid for through taxes, insurance costs, uninsured damage, and increased prices due to supply chain shortages. By 2050, this figure is expected to rise to more than $2500 a year.
What this figure shows and the ICA notes it that: “we all pay”. This is sometimes what policyholders, including your landlord clients, may not always realise.
It’s not only those caught up directly in a catastrophe that are affected – it’s practically everyone who holds insurance.
And that’s something you might need to explain to your landlords if they question why their premium has risen even though they haven’t made a claim or been involved in a disaster.
If you have clients questioning landlord insurance costs and its value, then these points might help.
Natural disasters mean insurers are paying out more, more often
When natural disasters strike, they devastate communities and leave a huge damage cost.
Insurers support policyholders by paying the cost of rebuilding or replacing lost property.
Collectively, those payouts can stretch into the billions of dollars.
Unfortunately, as the frequency and severity of natural disasters increase, so too do these losses. This equals higher pay outs for insurers. And these higher costs often need to flow through to all policyholders in the form of higher premiums.
Greater environmental risk means more events to cover
Insurers use complex calculations to model the probability of natural disasters occurring and the potential losses that will result.
This helps insurers to work out what cover to offer and how to price it (the premium).
It follows that when the risk of a disaster happening is higher, then the probability that losses will be sustained, and policyholders will need to be paid out, is higher.
So as the risk is higher, the premiums the insurer needs to charge will be higher.
Put simply, if the insurer doesn’t collect enough money to cover the risk, then there won’t be enough to cover policyholder losses.
Climate change is changing insurance
Unfortunately, it is forecast that Australia will suffer more frequent and severe natural disasters in the years ahead, thanks to the rising risks of extreme weather and climate change.
This means it is inevitable more policyholders will suffer losses, so premiums will also have to be adjusted to keep up with the evolving risks.
The onslaught of natural disasters means insurers are paying out more, more often. So that there is enough money to pay future claims, insurers need to adjust the premiums that policyholders pay.
As a result, the increasing frequency and severity of natural disasters is causing insurance premiums to rise.
We all want to ensure there’s enough money in the insurance kitty if misfortune happens to strike your client’s property.