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Floods and inflation – repercussions are set to persist

Prices for everything from vegetables to fuel have risen during the past year for a variety of reasons, and all the economic indicators suggest rising costs will remain an issue for businesses for quite a while yet.

Flooding across large areas of Australia, covid-related international trade disruptions and the war in Ukraine have contributed to the uptick in inflation, while central banks have raised interest rates in an effort to slow rising prices.

Insurance has been no exception to that wider trend, with premiums rising in response to changing risk assessments and increased claim costs – particularly as shortages of building products and tradespeople delay property repairs and escalate expenses.

Commercial premiums have been gradually rising in recent years in what the industry refers to as a “hard market”. While there’s been a tapering in the size of some increases in lower-risk classes of insurance, local and global influences suggest insurance buyers are still facing challenges.

Reinsurance – which Australian insurance companies buy to “spread the cost” of major claims around the global market – is vital. We’re among the world’s biggest buyers of reinsurance.

The annual January reinsurance renewals this year have highlighted some of the pressures. The renewals are particularly important in Europe and the US but are also a focus in Australia, with some local insurance underwriters renewing on a calendar basis while others at this time are looking for signals ahead of the larger mid-year negotiations.

Unfortunately, the vagaries of global capital markets, combined with Australia’s massive floods and the constant threat of other natural disasters like flood and bushfire, has caused reinsurers to approach Australian property with a higher degree of caution than normal. Reinsurers face their own capital availability problems as economies slow. It is more expensive than previously, and as recent natural disasters around the world hit reinsurers’ bottom lines it is also becoming harder for local insurers to obtain full cover without paying more for it. That’s one of the major influences on local premiums.

The Insurance Council of Australia says the bill for storms and floods since January 2020 has topped $12.3 billion. The total includes more than $5.6 billion for the NSW and Queensland flooding last February and March, which has become Australia’s worst natural disaster for insurance losses.

Heavy rain and floods persisted for much of last year, fuelled by a third consecutive La Nina climate system, which is typically associated with wet weather over eastern Australia.

Models monitored by the Bureau of Meteorology suggest more benign climate drivers will prevail in coming months, but Australian insurers are still faced with those higher reinsurance rates and other cost pressures, and are taking a careful approach as policies are taken out or renewed.

Businesses in some locations, such as those that are flood-prone, or which have a heightened potential risk exposure for other reasons, will face more intense scrutiny from insurers and we will need to work with you to examine ways of reducing the potential for claims.

Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.

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Businesses in some locations, such as those that are flood-prone, or which have a heightened potential risk exposure for other reasons, will face more intense scrutiny from insurers and we will need to work with you to examine ways of reducing the potential for claims.

In other areas of insurance, market conditions have eased for liability and professional and financial lines, but as is the case with property, some risks remain difficult to obtain.

The impact of natural catastrophes and the resurgence of inflation are expected to remain top issues for insurers this year, and that impact will continue to drive premiums. Getting advice from us on how to navigate the market and obtain the most suitable cover is more important than ever. It’s a tough world at present, but as your broker we’re here to help.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.


Adroit Insurance & Risk, ABN 75 078972 700, AFSL 244 348

This article originally appeared on Adroit Insurance & Risk Blog and has been published here with permission.

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