The claims that resulted from last December’s hailstorm of $1.2 billion in Sydney has a chilling message for Australian insurers that they better get used to it.
Hailstorms and other secondary perils such as floods, bushfires, droughts and liquefaction will remain the biggest source of natural hazard losses according to Swiss Re in its latest report.
For the second year running, small and mid-sized events usually excluded from natural catastrophe risk models have combined to account for the majority of claims payouts.
These and other effects from primary perils such as cyclones and earthquakes made up more than 60% of the $107 billion insurers worldwide paid out last year on natural catastrophe claims.
The Californian wildfire, which the industry labels secondary, was the single largest insurance loss event last year at $16.8 billion.
Swiss Re stated that they expect secondary perils including river and storm surge floods to become more and more and will rank among the top loss- making events in any one year, and this will happen sooner rather than later.
They went on to say that insurers need to get a better handle on this as their primary focus is on primary perils, because of the severe losses they cause, and has led them to overlook hazards in the second tier. This means that insurers need to develop methods of risk measuring, monitoring and modelling to manage a different kind of natural perils result volatility, one that is more frequency-driven than severity driven.
Growing urbanisation and the increase in climate change-influenced weather events, of which Australia has seen plenty in recent years, will bring an acceleration in the frequency and impact of secondary perils risks.
Swiss Re’s Head of Property Treaty Underwriting David Sinai said that Australia is heavily exposed to secondary perils and the report stated that the growth in secondary peril insured losses is mostly due to concentration of exposure growth in larger cities, in coastal areas and on floodplains. Put simply Swiss Re believe that when we put more assets in harms way we will see more losses.
With climate change Swiss Re expect that wildfires and drought will occur more frequently, and that tropical cyclones will possibly be more intense. However, climate change itself is not the sole cause of huge resulting losses, rather it is the impact of population growth and urbanisation. Weather and other events become catastrophes only when they hit densely populated areas.
Ensure you InsureRight – contact us today for more information: info@procurementaustralia.com.au
