KPMG Warns About Disaster Insurance

That’s even with residents in flooded areas like Lismore or Ipswich’s Goodna avoiding taking out flood cover because of the high premiums.

“The most recent flooding has really highlighted the issues of lack of insurance or… inability to get insurance, profoundly,” said Scott Guse of KPMG, a co-author of their review. The Australian Financial Review.

The KPMG report said modeling was predicting more severe events with climate change, and among industry headwinds it warned of “imminent market failure and significant potential risk of underinsurance for some locations and asset classes to as natural hazards become uninsurable.

Guse said this was “an issue because the frequency of these events that we’re having is only increasing.”

“The magnitude is also increasing.

“We are going to see more and more people affected more frequently and so there will be huge disruptions to the Australian economy, huge disruptions to individuals’ personal lives and their social circumstances.

“It just has negative connotations in general.”

The industry has advocated government-backed mitigation measures such as levees, arguing that nearly 97 percent of public disaster funds are typically spent on recovery work rather than preventative measures.

There are questions about whether insurers would pass on premium benefits even if they receive benefits from such taxpayer-funded mitigation.

But Mr. Guse countered that insurers were extremely competitive and anyone trying to make big profits in any one area would find rivals moving into those locations, putting downward pressure on premiums.

While better development planning would help, Guse said it was unfeasible to suggest that long-term residents in some suburbs simply move in wholesale. Mitigation measures, including the use of floodproofing in homes, could help, she said.

Some insurers have been pushing premium increases of more than 10 percent following the disasters and cost increases from COVID-19-related supply bottlenecks.

Mark Tomlins, an insurance analyst at Hunter Green, said in a note this month that rising inflation “is likely to make customers more sensitive to price increases.”

“[This] it could lead to an acceleration of unit losses, something that has plagued both IAG and Suncorp in their home insurance business for the past decade. For many clients, insurance has already become a luxury item,” he wrote.

Mitigation measures are in the spotlight as the federal government decided on Wednesday not to contribute to the proposed half of the Queensland government’s $741 million climate resilience package.

The federal government is also facing calls to expand its proposed $10bn taxpayer-backed cyclone reinsurance pool for northern Australia to floodplains, as a way to reduce premiums.

Some insurers remain cautious. Brisbane-based RACQ said it supported the reinsurance pool idea, but operational aspects such as proposed price rates are still unclear and the pool’s coverage is limited – it only responds to damages that occur up to 48 hours after a cyclone dissipates.

Sunshine Coast-based Youi CEO Hugo Schreuder told the financial review it was too early to say whether any government-backed pools should expand into floodplains further south.

However, he added that “if you look at the sheer economics at play, I just can’t see how the government can step in because insurers aren’t interested or can’t get involved in the environments. [routinely flooding] because they can’t put a price on it.”

“If you [have] a house that floods every, say, five years, you need to get enough premium in five years to…rebuild that every time,” he said.

“It’s just not an economical and viable option.”

He said the government should seek other means of assistance, such as mitigation and planning.

KPMG’s annual review also said digital offerings for insurance customers appeared to lag behind “other sectors with few personal lines insurers seen as providing best-in-class customer service.”

Guse said the banking industry had been “years ahead in terms of digitization and personalization” of banking deals. He noted that insurers dealt with clients once a year at premium renewal or when a claim was filed.

He said policyholders were increasingly filing claims online and the challenge for insurers was to improve the “hurdle” stage, when claims moved to having assessors or builders dispatched.

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