Washed away

Washed away

Insurers are stepping up as communities face a long rebuild following the catastrophic Queensland and NSW floods

By Wendy Pugh

People and horses trapped overnight on a bridge, waters up to roof height and piles of sodden household debris will be defining images from floods that kept getting worse as storms spread and rains returned to areas previously inundated.

The Insurance Council of Australia (ICA) declared a catastrophe on Saturday February 26 for south-east Queensland. Two days later the declaration was extended to New South Wales as surging waters breached riverbanks and levees and floods reached record levels.

Torrential rainfall then extended further south, pounding the Sydney region, while affected areas have been drenched again during March and into April.

Deep trouble: record-breaking floods hit Lismore.

Credit: Natalie McComas

Insured losses reached an estimated $2.4 billion and were still climbing by the start of this month. The total has passed losses from the 2019-20 Black Summer bushfires and from the 2011 Brisbane floods.

“It’s some of the most widespread devastation I have witnessed, and it is a tragedy for so many Australians,” Suncorp Chief Executive Steve Johnston said after spending time on the ground in Gympie, Lismore and around south-east Queensland.

“There's a lot of heartbreak out there in many of these communities, with many of our customers, who we're working very hard to get back into their homes as quickly as we can.”

NSW Deputy Premier Paul Toole, visiting the Northern Rivers region, pointed out the magnitude of the clean-up, saying 17,000 truckloads of debris had been taken away, equivalent to about 110 Olympic-size swimming pools, with about 100,000 tonnes of material expected to be collected.

The Insurance Council of Australia (ICA) has been working with local, state and federal governments as the response has shifted from rescue to recovery, and has received acknowledgment from Premier Dominic Perrottet.

“I think if we look over the past whether it’s been through bushfires, whether it’s been through floods, we have always relied on our insurance companies to work with the government, to work with local communities,” he said at a media conference. “We very much appreciate that engagement because the recovery and construction and rebuilding of these communities is going to be crucial.”

ICA has liaised with federal authorities on expediting visas for the deployment of key insurance personnel to Australia and insurers were also involved in aerial surveys of Lismore, Ballina, Grafton, Murwillumbah, Gympie, Maryborough, Brisbane and Logan to help assess damage while flood levels remained high. Industry personnel were on the spot as soon as waters receded.

Suncorp says it is recruiting an extra 600 people to speed the recovery process, including leaders in disaster response and event claims, event response co-ordinators, claims managers and customer service specialists.

The enormity of the disaster became clear as surging claim volumes quickly outpaced lodgement trends from the extreme weather catastrophe of a year earlier, and from the Townsville monsoonal floods in 2019.

Total claims received had reached around 170,000 by early April, putting pressure on an insurance sector already dealing with a high level of losses from ongoing summer storms and recent catastrophes amid impacts from the covid pandemic.

ICA advised early that under catastrophe protocols insurers would triage claims to deal with the most urgent and severe first, and cautioned that global materials shortages and local labour constraints would affect rebuilding and recovery timeframes.

A recent Housing Industry Association update highlights deteriorating availability across skilled building trades, while ICA notes Australian Bureau of Statistics data that shows strong demand for building materials has caused rising housing construction input costs.

Brokers say many insurers’ claims services have deteriorated under the weight of various pressures and as they deal with difficult circumstances.

MGA Claims and Communications Co-ordinator (Operations) Mark Fitzgerald says phone and email responses from insurers are taking longer. Covid has also added complexity as people, including loss adjusters, builders and clients, have fallen ill or isolated as a result of the recent virus wave.

“These are unfortunate circumstances and it really is the perfect storm,” Mr Fitzgerald tells Insurance News.

The severity of the flooding is partly attributed to a second consecutive La Nina event. The climate driver, which is currently weakening, is typically associated with increased rainfall in the country’s east and has been responsible for some of the nation’s worst natural catastrophes.

During the recent storms Brisbane received 80% of its annual rainfall in three days and parts of NSW recorded their highest daily and monthly rainfall on record in March. Dunoon, near Lismore, reportedly received 775mm of rain in one 24-hour period.

IAG Executive Manager Natural Perils Mark Leplastrier says records show Sydney has experienced its wettest summer in 30 years, and the most humid in a decade, with weather patterns driven by warmer than average ocean temperatures in the Coral and Tasman seas under La Nina conditions.

Devastating damage: the clean-up begins in affected properties.

Credit: Natalie McComas

“This provided a source of moisture that successive low pressure systems tapped into through summer and early autumn, and ultimately led to the extreme rainfall and record flooding in Queensland and northern NSW,” he tells Insurance News.

“Higher rain rates and storm total rainfall is a theme that is starting to emerge from the climate change science. With further climate change, these types of events should become more frequent or intense in the future.”

Mr Leplastrier says research that IAG’s Natural Perils team developed in conjunction with the US-based National Centre for Atmospheric Research found extreme tropical cyclones, storms, hail, floods and bushfires are becoming more frequent in warmer climates, and communities in Australia are experiencing this first-hand.

“Over many years we’ve highlighted the importance of greater investment in mitigation initiatives to protect lives and property, as well as making insurance as affordable and accessible as possible for these communities,” he says.

The floods have put the spotlight on the cost of disasters to government. The Federal Coalition says it expects to spend more than $6 billion on disaster relief and recovery. Queensland and NSW have announced a number of separate measures.

A $771 million Queensland Government disaster package, which has been welcomed by insurers, includes funds for retrofitting, raising houses or for the potential voluntary buy-back of homes at high risk from future floods.

In NSW, flood-prone Lismore is at the centre of debates around what can be done for established properties and communities in high-risk locations, given the increasing magnitude of events.

The town, nicknamed “the wok” because of its terrain, was inundated after Cyclone Debbie when a levee – completed only 17 years ago – overtopped. The flood peak on February 28 this year exceeded 14 metres, two metres higher than the 1954 record and well above the levee height.

The levee then overtopped for a second time in less than five weeks when the rain returned.

Risk Frontiers General Manager Resilience Andrew Gissing says climate science behind a recent UN Intergovernmental Panel on Climate Change report suggests Australia will see worsening extreme weather events.

“This will only place greater pressures on insurance premiums, making insurance unaffordable for people in the highest-risk areas,” he says. “It is essential we prepare for what may previously have been considered ‘unprecedented’.”

While more can be done, eliminating risk by removing homes and businesses from floodplains would be an expensive exercise, he says.

“In the US, large-scale schemes are routine, allowing homeowners to sell their properties to the government so the area can be returned to open floodplains,” Mr Gissing says. “But property is generally much more expensive in Australia. The purchase of flood-prone properties in Lismore alone would likely cost more than $1 billion.”

Swiss Re research shows the need for action on flooding is not just an Australian problem. Around the world climate-related weather events are devastating, and the protection gap is widening.

Aftermath: treasured possessions have been ruined.

Credit: Natalie McComas

Global economic losses from floods came to $US82 billion last year, while insured losses stood at slightly more than $US20 billion. Yet floods have been less well monitored compared to “primary” perils such as cyclones and earthquakes, which tend to happen less frequently but with high loss potential.

“Given the scale of devastation, flood risk deserves the same attention and risk assessment rigour as primary perils such as hurricanes,” Swiss Re Head of Catastrophe Perils Martin Bertogg says.

The reinsurer has called on the global industry to give flood risk greater attention when it comes to exposure data capturing, sharing and model use, and highlights the need for flood defences and long-term investment in sustainable infrastructure.

“With due attention on different fronts, re/insurers will remain primary agents of economic and social resilience against the ubiquitous risk that is flood,” Swiss Re says.

Australia’s previous worst flooding catastrophe in 2011 – which was also in La Nina conditions – saw Brisbane inundated, while Cyclone Yasi caused extensive damage in northern Queensland. The losses triggered flood insurance reforms, but a decade later underinsurance, non-insurance and affordability remain critical issues.

“Insurance prices risk, and that means that for those in flood-prone locations, particularly small businesses, flood cover can be costly,” ICA Chief Executive Andrew Hall says.

“That is why the ICA has called on all Australian governments to do more to protect homes, businesses, and communities from the impacts of extreme weather.

“With appropriate mitigation infrastructure and household-level programs, property can be better protected and premiums can decrease, but this can only be achieved if governments act with urgency.”

Those calling for an extension of the Federal Government’s cyclone reinsurance pool have warned the floods are likely to fuel premium increases for residents in high-risk areas.

It’s an issue set for scrutiny, along with the wordings and cover provided by insurance policies.

The Financial Rights Legal Centre, which has called for standardised definitions of storm and other perils and greater clarity on exclusions, anticipates it will be contacted by homeowners who are caught out despite best intentions.

It says even flood insurance is not always clear, despite the introduction of a standard definition in the wake of the 2011 catastrophe.

“We do expect to get a lot of calls from people who are either underinsured or who are excluded from a claim due to the definitional issues,” Senior Policy and Advocacy Officer Drew MacRae told Insurance News.

As the clean-up continues, the immediate recovery and future implications will present challenges for the insurance industry, other responders and all levels of government. There are sure to be plenty of reviews.

The NSW Government has already announced an independent inquiry to examine experiences and to make recommendations on issues including preparation and planning and ways to better future-proof communities. Reports are due by the end of June and September.

“No two floods are the same and there is no formulaic response, but when it comes to natural disasters, we can never be too prepared,” Mr Toole says.