S1: From the newsrooms of the Sydney Morning Herald and The Age.
S1: This is the morning edition. I'm Samantha Salinger Morris. It's Tuesday,
S1: March 11th. Tropical Cyclone Alfred may have been downgraded to
S1: an Ex-cyclone, but homes across New South Wales and Queensland
S1: still remain at risk of major flooding. And now thoughts
S1: are turning to what the cost will be, just how
S1: many people were insured against this destruction, and how many
S1: will be able to claim back money in what's now
S1: being called an insurance catastrophe. Today, business journalist Soumya Ilanbey
S1: on what it will take for insurance premiums to come
S1: down after steady rises over the last couple of years,
S1: especially as global warming increases the frequency and cost of
S1: climate disasters. So Soumya, we are recording this on Monday
S1: morning and the impact from what is now an ex-tropical cyclone.
S1: We know it's far from over, but already there's a
S1: huge question mark on insurance. So can you tell us,
S1: do we have any sense of how big the damage
S1: bill might be and whether people are actually going to
S1: be covered for this?
S2: It's obviously still really too early to tell. Cyclone hit
S2: landfall only Saturday morning, and we're still going to see
S2: the impact of whether it's the wind damages or the
S2: flooding as well. Before Cyclone Alfred was effectively downgraded, ratings
S2: agency S&P global had estimated the insurance cost to be
S2: about $2 billion. It's worth, I guess, also putting that
S2: figure into a bit of context as well. The Insurance
S2: Council of Australia said the last cyclone that hit Australia
S2: in 2023 cost about $410 million, and there were about
S2: 10,500 claims. The 2022 floods, which was one of the
S2: costliest natural disasters in Australia's history, cost $6.4 billion, and
S2: there are about 245,000 claims across the east coast of Australia.
S2: Of course, not everyone will have damage to their homes
S2: and the extent of the damage will be different. But
S2: there are about 4.5 million people in the path of
S2: the cyclone and almost 2 million homes as well. So
S2: I think we can sort of gauge how big this
S2: natural disaster is on Sunday. So these figures are a
S2: little bit old now, but the latest is the insurers
S2: had received almost 3000 claims so far. I spoke to
S2: the NRMA and they said most of the claims were
S2: for trees falling on homes. So wind damage caused because
S2: of that and that 80% of those claims were from Queensland.
S2: There's a real possibility that homes that were flooded and
S2: affected in 2022 are also being affected by Cyclone Alfred,
S2: so it means that some homes are probably being repaired
S2: or rebuilt, you know, twice or three times in the
S2: last couple of years alone.
S3: It's got that unwanted reputation as perhaps the flood capital
S3: of Australia.
S4: Here it comes again. It's only three years since the
S4: last one, and we're facing it all again.
S5: And it's just a heartbreak to see people having a
S5: go to get back here and and to face this
S5: so soon.
S2: So the community of Lismore, just a couple of weeks ago,
S2: held a three year anniversary commemorating what happened during 2022.
S2: And I think also celebrating their resilience as well. And
S2: for that community to be hit so soon after that
S2: natural disaster is probably quite traumatising. And consumer advocates are
S2: asking the insurance industry to keep that in mind when
S2: they're dealing with these communities.
S1: Especially since we know that the Prime minister actually appeared
S1: on television just on Monday morning. And he said that
S1: with regards to those people who suffered damage in 2022
S1: with those floods that some of those people, quote, waited
S1: years for, payouts.
S6: Will certainly hold the insurance companies to account. This is
S6: a time where they need to do a bit of
S6: repair of their relationships with the Australian public by doing
S6: the right thing and making payments immediately for people who
S6: are eligible. That's what people expect.
S2: I've spoken to quite a number of people, not just
S2: in New South Wales and Queensland, but in other flood
S2: affected areas, and they were still waiting for their homes
S2: to be rebuilt. Years later, they were still waiting for
S2: their claims to be processed years later.
S1: And of course, all of this is happening against a
S1: backdrop of insurance premiums that have really been sort of
S1: rising rapidly. So can you just give us a brief
S1: rundown about what's been happening there?
S2: Yeah. So anyone who has any form of insurance knows
S2: that insurance costs have been rising, not just by a
S2: little bit, but by a lot. You know, people have
S2: spoken about the insurance rising 100% in two years or
S2: quadrupling over the past couple of years. And I think
S2: we know inflation has been a huge issue, of course,
S2: since Covid, and insurance has been the key driver of
S2: that inflation, mainly because of supply chain and labor costs
S2: and the 22 floods that we saw. And insurance inflation
S2: has also been at its highest since the early 2000.
S2: It's been moderating since. But just because inflation has been
S2: moderating doesn't mean the price is going backward. Prices and
S2: premiums are still rising, but they're rising a little bit
S2: more slowly than they were a year ago. And I
S2: think the industry was expecting prices to moderate even further
S2: this year. But that could now be affected because of
S2: Cyclone Alfred.
S1: Okay. So why why have our premiums actually climbed so much?
S2: So there's a couple of different factors to that. You
S2: know one is the claims cost. So what insurers anticipate
S2: the cost of claims will be over the next year. It's,
S2: of course, price inflation, the cost of rebuilding homes, the
S2: cost of capital also plays into it as well. So insurers,
S2: they must hold reserves to cover future claims. Reinsurance costs
S2: can impact the price of premiums, and we know that
S2: global reinsurance premiums have been rising quite significantly as well.
S2: And as climate change increases the severity and the frequency
S2: of natural disasters, it means that more homes are being
S2: impacted by climate change. It means that they're being impacted
S2: in a far more severe way. So the cost of
S2: rebuilding and repairing those homes is much more costly than
S2: it otherwise would have been.
S1: And so given that climate change is obviously not going away,
S1: and scientists are saying, you know, quite widely that it's
S1: only going to get worse if we don't stem pollution,
S1: then does there just come a point when homes are
S1: just uninsurable in particular areas in Australia?
S2: Yeah, that's a really good question. And it goes to
S2: the heart of the issue at the moment. We obviously
S2: have a housing supply issue, so we need to increase
S2: housing supply. But we also need to do it in
S2: a way that recognises high risk zones and how we
S2: build homes fit for these zones. For example, there are
S2: strict building codes for fire zones, but those same levels
S2: of restrictions don't apply for flood zone areas. And a
S2: report from the actuaries estimate just a couple of years
S2: ago had estimated that 1 in 8 households were facing
S2: home insurance affordability stress, and that report says the largest
S2: number of people in short stress are in south west Queensland,
S2: the Northern Rivers region in New South Wales and, you know,
S2: regional Western Australia and the NT. And, you know, some
S2: of these areas have been badly affected over the last
S2: couple of years because of climate change.
S1: We'll be right back. And so Soumya, there was a
S1: parliamentary inquiry into the 2022 floods. So can you just
S1: briefly talk us through that?
S2: Yeah. So there were 86 recommendations in total. And I
S2: think one of the most critical ones that insurers have
S2: been calling for a very long time, and particularly as
S2: climate change exacerbates the severity and frequency of natural disasters,
S2: is around local planning laws. The inquiry had recommended changes
S2: to planning policy to stop inappropriate development. Um, as well
S2: as I guess one of the interesting things is around
S2: federal government intervention to discourage banks from lending to buyers
S2: and even developers in really highly flood prone areas. More
S2: than 200,000 homes had a 2 to 5% chance of
S2: flooding every year, and that's an above average number for
S2: a developed economy. There are also recommendations calling for insurers
S2: to provide fully paid temporary accommodation until the claim has
S2: been closed, cash settlements being done more transparently and ethically
S2: because we heard from quite a number of victims during
S2: that inquiry that they were being lowballed by their insurers
S2: to accept inadequate cash settlements, and I think that will
S2: be a significant area of concern and scrutiny for advocates
S2: for the Cyclone Alfred cleanup.
S7: And so, I guess.
S1: What is the possible answer here? Like do insurers need
S1: to be brought into line in some way? Because we
S1: certainly know that Opposition Leader Peter Dutton has been speaking
S1: out about this.
S2: Yeah. And I think it's easy for, you know, politicians
S2: to get up and say, well, this industry needs to
S2: be brought into line. And if they don't do it
S2: on their own bat, we will force them to. As
S2: you mentioned, Peter Dutton threatened them with forced divestiture. And
S2: then David Littleproud said that wasn't coalition policy. And there
S2: was a bit of conjecture around whether it is or
S2: whether it isn't. We also don't know what a forced
S2: breakup would look like and how they would drive down premiums.
S2: But that parliamentary inquiry made comprehensive recommendations which have not
S2: been fully implemented. So that's a really good place to start.
S2: One of the things, though, that could help put a
S2: lid on rising premiums is the federal government's $10 billion
S2: cyclone reinsurance pool, and what that means is that insurers
S2: are protected by the Commonwealth balance sheet for damage that
S2: occurs when a weather system is officially classified as a
S2: cyclone in 48 hours from the time it is downgraded
S2: by the Bureau of Meteorology, and we as a country
S2: need to have a better discussion around improving building codes.
S2: And I think consumer groups have also been calling for
S2: legislated standards for insurers as well, to make sure that
S2: they're they're always acting in the best interest of consumers.
S2: And I spoke to the Consumer Action Law Centre last
S2: year for a different story related to insurance. And one
S2: of the things that they called out was the insurance
S2: industry's quote unquote, cultural problem, saying insurers were taking too
S2: long to process claims, making the whole process incredibly stressful
S2: for vulnerable people.
S1: And just finally, Samir, where do you expect the focus
S1: to turn now in the wake of Ex-tropical Cyclone Alfred?
S2: I think there will be a lot of scrutiny on
S2: the industry to ensure that they are acting openly, fairly honestly,
S2: that they are dealing with consumers and victims in a
S2: sensitive manner. We obviously have a federal election coming up,
S2: and Prime Minister Anthony Albanese made some comments highly critical
S2: of the industry this morning as well. The consumer advocacy
S2: bodies will be watching really closely at the same mistakes
S2: and the same poor handling of consumers from 22 isn't
S2: repeated this year, and insurers over the past week have
S2: consistently said that they've learned the lessons of the 22 floods,
S2: that they are better prepared for Cyclone Alfred than they
S2: were for the floods a couple of years ago, and
S2: that they know what to do.
S1: Well, thank you so much Soumya for your time.
S2: Thank you for having me.
S1: Today's episode of The Morning Edition was produced by Tammy Mills,
S1: with technical assistance by Josh towers. Tom McKendrick is our
S1: head of audio. The Morning Edition is a production of
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S1: in the show. Notes. I'm Samantha Selinger. Morris. This is
S1: the morning edition. Thanks for listening.