Insurers 'at capacity' as flood rebuilds blow out to 14 months

The average insurer rebuild time following the east coast flood catastrophe that struck in February and March has blown out to 14 months.

Insurance Council of Australia (ICA) CEO Andrew Hall says insurers are “absolutely at capacity” as they continue to work through 233,000 claims valued at $5.28 billion. The latest figures show 44.1% of claims have been closed but 129,000 are still outstanding.

Mr Hall’s comments come as the ICA today releases two major reports focused on the impact and cost of natural catastrophes and how to better prepare for them.

“The industry is still struggling to move through the February/March event because it was already operating at peak capacity,” he told insuranceNEWS.com.au.

“Within the industry we talk about cats, declared catastrophes, but there has also been a lot of kittens that don’t get much coverage. They’ve all been adding in to the workload.”

Mr Hall says that covid-related disruptions have added to the challenge, as have well-meaning state government buy-back and build-back programs.

“It has been on all levels a very complex recovery process, and we are still moving through the vast bulk of it,” he said.

“Unfortunately – and I know everyone is sick of blaming covid – but the disruption that it did bring about to the whole system meant that it really has taken a while to get it back to that level of responsiveness that we need it to be at.

“We know we have to manage customer expectations and community expectations at the moment. We know that the average rebuild time has blown out to 14 months.

“We know that then leads to scenarios where we are not going to meet the sort of benchmarks that we were achieving after the bushfires when insurers closed claims at a record rate.”

Temporary accommodation entitlements in policies usually run out after 12 months, and Mr Hall says insurers are dealing with this issue “case-by-case”.

“I have spoken to a number of the members and they are very aware of how these things can play out.

“We are engaging with regulators, and state governments, because one of the delays is people wanting to know what they can get access to.

“There’s no point rebuilding a house if you know that the government potentially will buy it and demolish it, or you could gain a top-up grant to be able to lift it or something like that.

“I’m not criticising these programs because they all have the right intentions. But they are very big programs for governments to implement – they are huge and they are going to take some time.

“I think the problem is they are occurring almost independently of the ticking timeline that is occurring with insurers trying to close claims. There really is a tension that needs to be better managed.”

Mr Hall says brokers play a vital role in the claims process, particularly for commercial claims.

“They play an important role because they understand the product that was sold to their client and they can often help in those initial stages around what’s been covered and what’s been triggered by the event.

“That’s what a broker is there for. That’s why they earn their commission. To provide that support and help during that claim phase.”

The reports released today by ICA sum up the impact of catastrophes in the past financial year, as well as repeating the industry’s message about increasing spending on resilience, better land use planning, and the need for reform on insurance taxes.

A study commissioned from leading think tank the McKell Institute shows that extreme weather events over the past 12 months cost every Australian household an average of $1532.

The Cost of Extreme Weather report also shows that over the past 10 years the average annual household cost of extreme weather has been $888, but this figure is expected to jump to more than $2500 a year by 2050.

Also released today is ICA’s second annual Insurance Catastrophe Resilience Report, which uses insurer data to review the last 12 months of extreme weather events and advocate for changes to reduce the impact of future events.

The reports show that since 2005, Commonwealth expenditure on disaster relief was $24 billion while spending on disaster resilience was just $500 million – or about 2% of all expenditure.

By 2050, Australian households will be paying $35.24 billion every year (in 2022 dollars) for the direct costs of extreme weather.

In the 2021/22, financial year insurers paid $6.41 billion from more than 380,000 claims across multiple events, which was $3.9 billion more than the previous 12 months.

The Catastrophe Resilience Report can be read here and the McKell report can be read here.