Lessons learned from a $6 billion season

Lessons learned from a $6 billion season

Insurers stepped up to manage more than 300,000 claims after a massive run of natural disasters

By Miranda Maxwell

A social media meme doing the rounds this year sees one weary citizen yearn that they “just want 2021 to be precedented”.

Australia’s claims managers must relate wholeheartedly to that sentiment after a record-breaking 2019/20 natural catastrophe season which produced insured losses just shy of $6 billion.

A year on from last summer’s terrifying mega firefronts which tore through 8 million hectares and alone produced $2.32 billion in insured losses, we can reflect on the experience of insurers swamped by more than 300,000 claims stemming from the November-April 2020 period.

Australia and New Zealand have both confronted a decade of devastating catastrophes – from the Townsville floods, cyclones Debbie and Yasi, prolonged droughts and destructive earthquakes in New Zealand.

Yet insurers say last summer still shocked experienced claims managers.

“There is no doubt the Black Summer was extraordinary,” Suncorp’s Head of Disaster Response and Event Claims Cath Stewart told Insurance News. “We saw 12 major insurance events spanning floods, hail and bushfires across the summer which really sets it apart from previous seasons.

“The 2019/20 summer reinforced the increasing severity and unpredictability of the disaster season.”

Suncorp’s disaster response team prepares for these events by running complex simulations to refine its processes. The insurer successfully managed more than 80,000 insurance claims after last summer’s widespread catastrophes, mostly related to hail, storm and flood.

Suncorp says 2019/20 is a reminder that climate change is increasing the severity and frequency of natural disasters in Australia and the country must invest in natural hazard resilience.

“This is not something Australia can just kick down the road without addressing the root cause,” Ms Stewart says. “The nation’s natural disaster damage bill is having a large effect on the price of everyone’s insurance.”

The industry has helped thousands of Australian families cope with such a severe run of fire, flood and hail – while managing the complications of a coronavirus pandemic on top.

The recent final report of the Royal Commission into National Natural Disaster Arrangements includes a chapter dedicated to the insurance industry, noting that “general insurance plays several important roles in managing natural disaster risk”.

“It allows people to manage a risk financially, including the risks posed by natural hazards, under agreed circumstances,” the report says. “It can communicate risk via the cost of premiums and thereby influence

Building back: Suncorp staff assess a devastating scene after a bushfire

behaviour, such as where people decide to live or how to build or renovate, and it can help households and businesses recover after a disaster.”

Never was the vital service performed by the insurance industry put to the test more thoroughly than in 2020.

Before the 2019/20 summer, the two most damaging and deadly bushfire seasons had been the Ash Wednesday fires in south-eastern Australia in 1983 and the Black Saturday fires in Victoria in February 2009.

Since 2017, large parts of Australia have experienced prolonged drought combined with record high temperatures, leading to the most extreme weather conditions recorded for any bushfire season.

At IAG, more than 12,700 claims were lodged across its brands throughout Australia by people impacted by bushfire, close to a third of the industry-wide’s 38,609 claims.

Total loss claims are all closed and overall IAG has finalised 94% of all its bushfire claims.

Severe hailstorms that hit Canberra, Melbourne and Sydney early this year resulted in more than 40,000 claims at IAG, with more than 26,000 of those motor. IAG has finalised 87% of those claims overall.

“Since the early start to the Australian bushfire season in September last year, we have been supporting our customers through an extraordinary period of unprecedented challenges and uncertainty,” IAG’s Executive General Manager of Short Tail Claims Luke Gallagher told Insurance News.

Over just the final two months of 2019, there were seven separate bushfires across Queensland, New South Wales, Victoria and South Australia, each large enough to be declared catastrophe events by the Insurance Council of Australia.

“That’s an unprecedented number of bushfire-related catastrophes in such a short time span,” Mr Gallagher says. “While Australia is no stranger to catastrophic bushfire events, the sheer scale and longevity of the Black Summer fires and the devastation they caused was truly unprecedented.”

Quantifying and comparing the scale and cost of natural hazard seasons can be complicated. Muddying the waters is the fact the 2019 fire season began months earlier than usual.

While no single hazard has matched the mega-events of Cyclone Tracy hitting Darwin in 1974 or Sydney’s 1999 hailstorm in terms of insured losses – they are the only Australian catastrophes to surpass $5 billion in normalised dollar values – the 2019/20 season collectively can be considered the worst period on record in dollar terms.

There were 315,638 claims valued at $5.94 billion, ICA says, and insurers have closed an average of 85% of household and motor natural disaster claims, despite COVID-19 interruptions.

“Closure rates are ahead of the normal curve,” ICA spokesman Campbell Fuller told Insurance News.

And the Australian Financial Complaints Authority (AFCA) received just 82 complaints about insurance relating to bushfire claims in the year to June 30.

Chief Executive and Chief Ombudsman David Locke praised insurers for being proactive in addressing any issues and offering resolutions for consumers and small businesses after the bushfires.

“This resulted in fewer complaints being lodged with AFCA than expected, and a faster dispute resolution timeframe,” Mr Locke said.

IAG set up a dedicated Major Event team to respond and be where customers needed them when disaster struck. As soon as it was safe to so, IAG had assessors on the ground and teams deployed to recovery centres across all affected states, working alongside local IAG teams.

In the NSW South Coast region, IAG staff were on location supporting customers for seven consecutive weeks, and in the hard-hit town of Cobargo, the insurer also deployed its Major Emergency Rapid Response Vehicle (MERRV) to provide emergency assistance and help people lodge claims.

An IAG spokesman told Insurance News many of its employees were brought to tears hearing the experiences customers shared with them.

“I was just continually amazed at the resilience and empathy our teams on the frontline show towards our customers,” says Mr Gallagher, who visited some of the bushfire-affected communities in the aftermath.

“Hearing the stories of what our customers had been through was humbling, devastating and often overwhelming, but I was also reassured by the knowledge that we had incredibly dedicated people working hard to ensure our customers in communities all over Australia could get back on their feet.”

Insurers have welcomed the royal commission report’s focus on risk mitigation and its promotion of better hazard resilience in its 80 recommendations on how Australia could better prepare for future hazard seasons.

The Federal Government has since agreed to set up a National Resilience, Relief and Recovery Agency.

Prime Minister Scott Morrison says the agency will be established by July next year to align and co-ordinate preparation efforts.

The Government says it supports “in principle” a recommendation for insurers to communicate clear guidance on individual level mitigation actions that will be recognised in setting premiums.

It also welcomed the opportunity to work with states and territories on a proposal that the Australian Building Codes Board look at making buildings more resilient to natural disasters.

Insurers say investing in resilience infrastructure will result in safer communities, stronger economies and a more sustainable insurance industry.

Suncorp is passionate about such mitigation measures, with Chief Executive Steve Johnston travelling to meet with Bundaberg City Council this year to discuss a flood levee project which has been awarded $42.5 million by the Queensland Government.

“Disaster mitigation is one of the smartest investments a government can make,” Mr Johnston says, noting Suncorp lowered premiums in the town of Roma by an average 45% after a flood levee was built.

“The equation is simple – when you lower the risk, insurers can lower the premiums.”

The COVID-19 crisis fast-tracked digital innovation and forced the industry to adapt quickly so customers could interact via simple self-service digital interfaces.

Suncorp’s virtual assessment tool enabled assessors to connect with customers and approved builders via their smartphones to assess damage, allowing multiple parties to participate.

It also increased Webchat capabilities and extended online claims functionality.

“We were able to quickly meet a dramatic shift in customer needs and a new working experience for our people,” Ms Stewart says. “Technology investment gave us the ability to scale up in event response, regardless of the location of our teams and travel restrictions.”

At IAG, a dedicated team was empowered with a high degree of discretion to help customers who were experiencing financial stress, and extra resources were allocated to ensure the crisis did not delay the processing of claims for bushfire-affected customers.

IAG’s Mr Gallagher says builders continued to repair the homes of bushfire-affected customers throughout the pandemic.

“We completed most assessments for claims related to the summer bushfires before the pandemic struck, and also increased the use of virtual assessing processes, such as via live video.

Looking forward, insurers are advocating more than ever that that preparation is key and explaining that even small-scale storms can have a big impact on Australians’ lives. For example last month’s “Halloween hailstorm” in south-east Queensland racked up more than 22,500 claims, with losses estimated at $260 million.

Suncorp has made use of data from across its stable of brands to give customers insights on storm spots, and is educating customers on how to prepare for the fire season, drawing on partnerships with the State Emergency Service and the Queensland Government’s Get Ready campaign.

The “Suncorp Storm Score” community challenge is available via smartphone to all Queenslanders, providing guidance on how to prepare for the disasters most likely to occur in their region.

Ms Stewart says insurers broadly have impressively demonstrated their mettle in responding to the huge 2019-20 hazard challenge, pointing to the establishment during the Victorian bushfires of a Customer Reception Centre at Melbourne’s Convention and Exhibition Centre to support evacuees from bushfire-struck Mallacoota. Claims lodgement and emergency payment support was provided.

The Royal Australian Air Force transported key assessors into Mallacoota to complete assessments – a poignant example of the industry working with government on ways to support communities and to progress claims.

“There are great examples of families getting on with the business of recovery, rebuilding their lives and building back better,” Ms Stewart says. “This past season brought out the best not just in Suncorp but our whole industry.”

Royal commission points to a stronger future

The final report of the Royal Commission into National Natural Disaster Arrangements was tabled in parliament at the end of October after receiving more than 1700 submissions, and received a warm reception from the insurance industry.

The report makes 80 recommendations, with insurers applauding its focus on disaster mitigation and improved resilience. It includes a full chapter acknowledging the role insurance plays in Australia’s management of natural hazards.

Insurance Council of Australia Chief Executive Andrew Hall urged federal politicians to make government funding available for priority mitigation and resilience programs, and a systematic approach to disaster risk reduction with improved building standards and land-use planning.

The report provides “clear and urgent direction” on measures to make sure Australians can withstand the changing risks caused by climate change, Mr Hall says.

Suncorp’s Steve Johnston says a number of the recommendations align with Suncorp’s own submission to the inquiry, including funding reforms, a review of the National Construction Code and better arrangements for the removal of debris.

“I welcome the strong themes of resilience, mitigation and disaster planning that run throughout the report,” he says.

New IAG Chief Executive Nick Hawkins also welcomed the report, saying the insurer has advocated for greater investment in mitigation for many years, and IAG “would welcome the opportunity to continue to work with the Government.”

Swiss Re says the recommended mitigation, resilience and planning would “help facilitate the role that insurance plays in helping communities recover after disaster”. Insurers made special mention of these recommendations:

• A clear role for governments to educate communities and provide accessible information to help them make informed decisions and take appropriate actions to manage disaster risk

• Greater federal support for state disaster management

• Improvements in the availability and quality of data to help governments and other stakeholders understand and manage natural disaster risk

• Mandatory consideration of natural disaster risk in land-use planning decisions

• Guidance for insurer-recognised retrofitting and mitigation under which insurers would give consumers clear guidance on individual-level natural hazard risk mitigation actions which will be recognised when setting policy premiums.

Largest losses

Here’s the Insurance Council’s list of Australia’s largest disasters (dollars normalised to 2017):

1. 1999 Sydney hail ($5.574 billion)

2. 1974 Cyclone Tracy (5.041 billion)

3. 1989 Newcastle earthquake ($4.244 billion)

4. 1974 Brisbane flood ($3.160 billion)

5. 2011 Queensland floods ($2.307 billion)

6. 1985 Brisbane hail ($2.274 billion)

7. 2019 Bushfires ($2.2 billion)

8. 2007 East Coast Low ($2.197 billion)

9. 1967 Black Tuesday fires ($2.157 billion)

10. 2017 Cyclone Debbie ($1.781 billion)

11. 1983 Ash Wednesday ($1.761 billion)

12. 2009 Black Saturday bushfires ($1.757 billion)

13. 1990 Sydney hail ($1.681 billion)

14. 2010 Melbourne hail ($1.625 billion)

15. 1967 SE Queensland hail ($1.595 billion)

Insurance losses from the 2019-20 natural disaster season total $5.94 billion from 315,638 claims, the latest available figures from the Insurance Council of Australia (ICA) reveal.

Insurers have closed an average of 85% of household and motor natural disaster claims, despite COVID-19 interruptions.

ICA gave the following breakdown of the almost $6 billion of losses:

• $2.325 billion from bushfires in NSW, Queensland, Queensland, SA and Victoria beginning on November 8 last year, leading to 38,609 claims. NSW accounted for 81% of claims, SA and Victoria each made up 8% and Queensland 3%.

• $1.64 billion from January’s hailstorms in the ACT, Victoria and NSW, leading to 130,345 claims: 57% from the ACT, 30% Victoria and 13% NSW.

• $964 million and 101,201 claims from the February east coast storms and flooding

• $504 million and 30,679 claims from November 2019 hailstorms in south-east Queensland

• $503 million from Rockhampton hailstorms in April