Insurance Pressure…First California And Now Australia
Wednesday February 13th… Dear Diary. The main purpose of this ongoing post will be to track United States extreme or record temperatures related to climate change. Any reports I see of ETs will be listed below the main topic of the day. I’ll refer to extreme or record temperatures as ETs (not extraterrestrials).😉
We have suspected since the active Atlantic hurricane season in 2004 one year before Katrina, in which four powerful storms hit Florida, that one of the biggest proverbial canaries in the coal mine indicating that climate change was becoming severe was the insurance market. That year I saw many a news article suggesting that it would become unaffordable for people in coastal areas of Florida to get insured. There was a lull in landfalling Florida hurricanes until Matthew came along grazing the East Coast in 2016, Irma making a direct hit along the entire peninsula in 2017, and Michael, which devastated the Florida Panhandle last year. Now talk of raising insurance rates in Florida is back with a vengeance.
Higher stresses on the insurance industry are coming not only from the coast but across burn areas. Most of us in the climate world have heard that the first corporation to go bankrupt from climate change was PG&E, which went under due to California’s recent wildfires. You can read the Bloomberg piece on that here:
Looking out for more of these “canaries” now we are learning about insurance ramifications partially due to Australia’s hottest month on record, January 2019. Today I am presenting an article stating how shaky the insurance market s getting across that climate change ravaged country:
https://www.abc.net.au/news/2019-02-06/could-climate-change-make-australia-uninsurable/10783490
Is it harder to get insurance in Australia?
The Signal By Ange Lavoipierre and Stephen Smiley for The Signal
Updated 5 Feb 2019, 9:44pmTue 5 Feb 2019, 9:44pm
Photo: Bushfires have burnt out more than 180,000 hectares in Tasmania so far this summer. (Supplied: Claude Road Fire Brigade) Related Story: Insurance premiums to rise as extreme weather conditions become more commonRelated Story: ‘This massive fungus grew from the wall’: renters are skipping contents insurance and it’s ending badlyRelated Story: Good weather or your money back: how extreme weather could change holidays
At the moment, Townsville is more or less underwater and large parts of Tasmania are on fire.
Key points:
- There were anecdotal reports of premiums reaching $30,000 after the 2017 Lismore floods
- There is a serious risk some places could become too disaster-prone to insure, according to an expert
- Taxpayers could end up footing the bill
Summer in Australia has always been extreme, but some corners of the country are experiencing climate-driven disasters that are worse than ever — and more of them every year.
Those stories are told in extraordinary detail as they unfold, but once the world looks away, there’s the question of who’ll pay the bill.
So with fires, floods and crazy weather becoming more frequent and severe, is Australia on its way to being uninsurable?
The clean-up can take years and cost millions
Tasmania is no stranger to bushfires, and the town of Dunalley was all but destroyed by the Tasman Peninsula bushfire in 2013.
The Mayor of Tasmania’s Sorrell Council, Kerry Vincent, said the fires caught a lot of people who were underinsured off guard.
“When you have a disastrous event, like whether it’s a flood or a bushfire, you don’t expect it to keep continuing,” Mr Vincent said.
“It starts off very small and it just builds, it’s like a steamroller. It just seems to go forever.”
Photo: A bushfire ravaged Dunalley in Tasmania’s southeast in January 2013. (ABC: Edith Bevin)
But the media attention died away within a matter of weeks, he said.
“You’re left with a very raw feeling of loneliness as part of the recovery,” he said.
“After that initial major bushfire where we lost 115 structures, it seemed to be really a two-year period.”
After a disaster like that, it’s common to hear reports of spiking premiums.
In the aftermath of the Lismore floods in 2017, in northern New South Wales, there were anecdotal reports of premiums reaching $30,000.
So what impact does a climate-driven disaster have on local insurance premiums? And could it ever reach a point where insurance is no longer offered in certain areas?
Could we become too disaster-prone to insure?
Could Australia become uninsurable?
Townsville is underwater and large parts of Tasmania are on firefires, floods and crazy weather become more frequent and severe, is Australia on its way to being uninsurable?
The director of the Climate and Energy Program at the Australia Institute, Richie Merzian, says it’s a very real risk.
“We will get to a certain point, somewhere between say 3 degrees or 4 degrees above pre-industrial levels, and a world like that will see situations where cities, entire coastlines, do become uninsurable,” he said.
Mr Merzian said in that case “the basic safety net that’s provided by the private sector just becomes too prohibitively expensive”.
He said in that instance, the burden will fall back on the taxpayer.
“The Government is always the insurer of last resort and then you see these odd situations where everyone will have to pay to keep these towns operating,” Mr Merzian said.
“And we saw that with the Queensland flood levy, where the damages were so big the insurance industry couldn’t possibly cover it.”
So can it be avoided?
Mr Merzian said it was possible, in the immediate future, to manage the risks to insurers in flood and fire-prone areas.
“Some insurers have basically decided to leave certain markets,” he said.
“Ideally the insurance [companies] that do want to stay in there need to work with the governments to make that happen.
“And that’s where you see more money and effort put into mapping the risks, improving zoning, building better codes and better safety measures.”
Photo: A truck drives along a flooded road in Townsville. (Supplied: Nick Gatehouse)
Mr Merzian warned that the difficult discussion about whether or not it was even appropriate to rebuild in some disaster-prone areas was not happening in enough places.
“There’s $88 billion at risk in terms of damage from coastal erosion in Australia … but no local council wants to go and tell people who have million-dollar beach houses, ‘you shouldn’t have built here’,” he said.
*Editor’s note:
The Australian Taxation Department’s website says the flood levy was introduced to help fund the rebuilding of essential infrastructure such as roads, bridges and schools in Queensland.
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I’ll continue to report on global insurance stresses or changes due to climate change. Drop me a note if you have seen other news in this area that I can add to this post.
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Here is some other weather and climate change news from Wednesday:
(As usual, this will be a fluid post in which more information gets added during the day as it crosses my radar, crediting all who have put it on-line. Items will be archived on this site for posterity.)
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The Climate Guy
Guy, if you haven’t read it, I’d suggest you do. Exactly what you’re talking about above, including when insurance as an industry becomes unviable.
https://www.insurancejournal.com/research/app/uploads/2018/08/IAIS_and_SIF_Issues_Paper_on_Climate_Change_Risks_to_the_Insurance_Sector_-1.pdf
I’ll leave it to my economist friends to pontificate on how an increase in uncertainty and volatility will play out in the economy as cc get’s “priced in”.
Thanks so much Bentley.
This is a great addition to this post.
The Climate Guy