The Queensland floods may cost insurers and reinsurers worldwide as much as $6 billion in what might be Australia’s costliest disaster in history.
Insured losses from this week’s deluge in and around the capital Brisbane may be as high as $4 billion, while damage from floods further north late last year may cost $2 billion, according to Milan Simic, managing director of catastrophe modeler AIR Worldwide.
Political pressure is mounting on Australian insurers, which include Suncorp Group Ltd., Insurance Australia Group Ltd. and QBE Insurance Group Ltd., to pay claims as residents return home to assess damage. Those companies are spared from the bulk of the costs by policies designed to pass on the bill.
“They would all have significant reinsurance protections,” Simic said in an interview yesterday. “Any losses that they experience would cascade to, say, the Bermuda market, the London market and all the other international reinsurance centers.”
Damage of $6 billion would rank the latest disaster as Australia’s most expensive since at least 1980, based on a list compiled by Munich Re, the world’s biggest reinsurer, of the nation’s 10 costliest natural catastrophes in the past 30 years.
Insurers paid $2 billion on a Sydney hailstorm in 1999 and $1 billion on a Newcastle earthquake in 1989, according to AIR. Those losses aren’t immediately comparable to the floods because the figures weren’t adjusted for inflation, Simic said.
Bigger Than Texas
The scale of the disaster may be unprecedented because more than 70 towns and cities in the state have been hit by the floods. An area larger than Texas and California combined has been declared a disaster zone by Queensland Premier Anna Bligh. At least 26 people are dead and around 55 missing after six weeks of floods.
Australia’s insurance industry has received more than 7,000 claims worth A$365 million tied to the floods, the Insurance Council of Australia said in a statement today. The figures don’t include damage in Brisbane and Toowoomba, where this week’s disaster started with a flashflood that swept through the town.
Suncorp, the biggest Brisbane-based insurer, has fallen 6.8 percent since Dec. 1 on concerns the floods would eat into earnings. Insurance Australia Group has added 1.9 percent. The benchmark index has gained 4.7 percent in the same period.
‘Sporadic’ Coverage
Policy limitations may shield insurers from many of the losses tied to business interruptions and costs incurred in rebuilding properties and infrastructure, Simic said.
“Most companies have coverage against tropical cyclones and earthquakes, Simic said. ‘‘But flood coverage in Australia is relatively sporadic. It’s not universally given.’’
Prime Minister Julia Gillard, in an interview with the Australian Broadcasting Corp. yesterday, called on insurers to extend ‘‘as much compassion as they possibly can’’ in Queensland. Opposition leader Tony Abbott today urged them to honor policies. Customers who have paid premiums shouldn’t be undone by ‘‘fine print,’’ he said in a separate interview with the ABC.
Suncorp said Jan. 12 that reinsurance will limit the cost of claims from the floods since Jan. 8 to no more than A$90 million ($90 million). For the fiscal first half ended Dec. 31, Suncorp expects to incur costs of between A$130 million and A$150 million from the first deluge that struck central and southwest Queensland from Dec. 25.
Suncorp, IAG
‘‘Suncorp is accustomed to responding to major-scale incidents and always treats its customers with compassion,’’ said Jamin Smith, a spokesman. ‘‘Suncorp’s personal-insurance policies cover for floods automatically. There is no fine print.’’
He said it’s too early for anyone to estimate the final cost of the floods.
Insurance Australia Group said yesterday it has received 2,400 claims tied to this month’s downpours, though it’s too early to estimate the cost. The insurer said its net cost from claims stemming from last month’s heavy rains will be no more than A$30 million.
‘‘We’ve mobilized assessors and will consider claims on a case-by-case basis,” said Angus Trigg, a spokesman for Insurance Australia. “Claims will be paid in accordance with what is covered by each individual policy.”
Source : Bloomberg Business Week
