The catastrophic floods that affected south-east Queensland and NSW in 2022 were the fourth costliest global disaster of the year. Devastating homes and businesses across the country, the record rains resulted in twenty-three deaths, and cost Australians billions in insurance claims. Throughout the year, continuous smaller flood events added to the suffering of the affected communities and insurers.
As a land of extreme weather, natural disasters will continue to cost Australian households and businesses greatly, leaving them to tackle higher premiums and cumbersome claims processes. This ‘hard’ insurance market makes desired insurance coverage harder-to-access than usual, especially for property owners in areas at high risk of natural disasters.
The cost of providing cyclone and flood cover drives up the premiums for many property owners in these areas, particularly in northern Australia and Western Australia. As researched by the Australian Competition and Consumer Commission, reinsurance is a significant component of premiums in such areas of natural risk.
What is reinsurance?
Simply put, as stated in the Treasure Laws Amendment Bill 2022, reinsurance can be described as ‘insurance for insurers’. Just like how homes and businesses may buy insurance, insurers purchase reinsurance to meet financial obligations of their claims.
Resultantly, reinsurance may rise due to damages caused by catastrophic rainfall during flood season. Although the government’s $10 billion reinsurance pool scheme has aimed to put downward pressure on these premium costs.
It is important for Australian business and households to remain vigilant during flood season in order to reduce rising insurance and reinsurance costs. Such factors include the various limitations of current insurance policies.
What to be aware of during flood season
Flood exclusions: Many business insurance policies will exclude claims arising from flood as standard. Flood coverage is usually optional coverage, and the premium charged will be dependent on the flood exposure: whether your location is at low, or high risk.
Storm damage: The term ‘storm damage’ can extend to storm, rainwater, wind, hail, and snow. Most standard business insurance policies contain clauses which limit cover for storm damage to textile blinds, shade houses, glass houses, gates, fences, signs and retaining walls.
Named cyclones: Many insurers specifically place significant excesses on claims arising from ‘named cyclones’. In some cases, these excesses can be as high as $50,000 per claim, and many small businesses may be unable to absorb such a high excess. It is crucial that you check your insurance policy schedule for specific excesses relating to named cyclones.
Hail damage exclusions: If you’re a business with stock left in the open air then you must consider your exposure to hail damage. In certain parts of Australia such as the Sunshine Coast, Brisbane and Gold Coast, hail insurance is very expensive to purchase, if at all.
Preparation is key against rising reinsurance costs
Today’s insurance market ensures that underwriters see hundreds of requests for quotes on a daily basis. Therefore, it is important that your business stands out as a good risk.
Ensuring your business is up to date during flood season is crucial in protecting yourself against rising reinsurance costs. If information is vague of incomplete, an insurer will not hesitate to decline to quote for your company’s insurance needs.
Key information to assess include:
- Company information: trading entity, correct ABN, date business established, etc.
- Business activities: a detailed breakdown of all business activities and percentage each activity contributes to revenue
- Claims experience: at least 5 years’ experience for each class of insurance
- Financial information: annual turnover, payroll, insurable gross profit
- Property risks: construction of building, fire protection, security protection
- Product Information: what products you manufacture, percentage breakdown, etc.
- Professional Services: full detail on services provided
- Employees and Contractors: number of full-time and part-time employees, sub-contractors, and labour hire
- Management risks: up to date Employee Handbook and Procedures
- Cyber risks
For more information, take a look at our detailed checklist, available here.
Whatever the weather, Crucial Insurance has you covered.
Crucial Insurance brokers provide our clients with trusted, straightforward risk advisory, helping them find the most suitable insurance policies for their situation and budget.
If you would like to discuss how you can reduce rising reinsurance premiums for your business, don’t hesitate to contact us today.
This article was written by Tony Venning,
Managing Director at Crucial Insurance and Risk Advisors.
For further information or comment please email info@crucialinsurance.com.au.
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