When we hear about devastating wildfires on the other side of the planet – like in Los Angeles, for instance – it’s easy to think it doesn’t affect us here in Australia.
However, the recent LA wildfires have caused significant economic damage. The insured losses are estimated to reach between AUD$44 billion and $72 billion; the total economic impact could hit $400 billion to $440 billion.
In fact, the global impact could last years, SBS has reported.
Why Australian Premiums Could Soar
This is why natural disasters in the US could influence insurance costs in Australia: it hinges upon the global reinsurance market.
Reinsurers, who provide insurance to insurance companies, spread risk worldwide. When they face massive payouts from events such as the LA wildfires, reinsurers frequently bump up their premiums to recoup losses. These higher costs filter down to local insurers and, eventually, to policyholders like you.
Australia’s own experiences with bushfires and floods also increase the pressure on insurers. So, global events and local climate uncertainties mean insurers must raise premiums and set aside more funds to cover potential claims.
The Growing Threat of Uninsurability
Rising premiums can lead to ‘insurance stress’, where the cost of insurance becomes a significant burden. In Australia, this affects about one in seven households, which spend four weeks or more of their pre-tax income on premiums.
Looking at California, some insurers have pulled out of high-risk areas, leaving residents with limited or costly coverage options. A similar situation could emerge in Australia, particularly in regions prone to extreme weather events like storms, cyclones, and flooding. These risks are escalating due to climate change, rising asset values, and expanding populations in vulnerable areas. Events such as the 2022 floods and severe cyclones in northern Australia highlight the growing threat to homes and businesses.
The Federal Government’s Disaster Ready Fund and the Insurance Council of Australia’s focus on resilience infrastructure aim to mitigate these risks, but without greater investment and smarter land use planning, insurance premiums will continue to climb—leaving many Australians underinsured or unable to access coverage altogether.
What Australian Policyholders
Can Do
Here are some proactive steps to help protect your home or business:
- Review your coverage: Ensure your policy includes adequate protection against bushfires and other disasters. Don’t wait until it’s too late to find out you’re underinsured
- Understand exclusions: Let us guide you what’s covered and what’s not in the Product Disclosure Statement (PDS) / Policy wording – we’re here to answer questions you might have
- Understand your property’s bushfire attack level and act accordingly
- Improve property resilience: Consider using tools such as the Resilient Building Council’s app to assess your property’s fire risk. Making your property more resilient might qualify you for premium discounts
- Develop a bushfire survival plan and set up an emergency kit, and
- Engage with us: Discuss risk mitigation measures that might lower your premiums. Simple actions like clearing vegetation or installing fire-resistant materials can make a difference.
Public awareness about the risks of bushfires and how to prepare for such disasters is the way forward. All these measures can’t eliminate the risks, but they can work together to minimise the risk of loss.
Preparing for the Future of Insurance
With our changing climate, ensure you plan ahead. Adopting fire-resilient construction (here’s an example advisory for Queensland properties) and landscaping practices (here are tips for those in WA) can reduce risk. There are also discussions about policy reforms, such as incentives for resilient building practices and government-backed insurance pools for high-risk areas.
Do you see your insurance as part of a broader risk management strategy? The aim is to transfer risk, and also to actively minimise it.
We can work with you to tackle these challenges. By reviewing your policies, understanding your needs, and exploring ways to make your property more resilient, we can help ensure you’re adequately protected in this evolving landscape. And be sure to look out for our next article for timely tips relevant for managing risk in your business.