Across the world, 2018 proved to be another active year for natural disasters. In Australia, rural communities battled against the devastating impacts of drought, with urban areas hit by shock hail storms causing record breaking damages.
The volume of events and the sheer number of claims, continues to be a harsh reminder of the need for all businesses – irrespective of size or scale – to understand their risks, and to take appropriate steps to protect themselves.
Aon’s Weather, Climate and Catastrophe Insights Report explores the major events of the past 12 months, with the aim to help businesses, communities, local governments, and the reinsurance industry boost their resilience, and address the long-term implications of climate risk.
Australia: major weather events in 2018
Given its size, Australia presents many different climates, with individual regions conducive to different types of extreme weather events.
Bushfires continue to be a concern across many parts of Australia. In 2018, extreme summer temperatures and expansive drought conditions led to dozens of bushfires in parts of New South Wales and Victoria. Floods also remain to be a challenge. Recent monsoonal rains and resultant flooding caused significant property damage and livestock losses across northern Queensland.
In northern Australia, tropical cyclones remained the most challenging weather event to obtain affordable cover for in specific high-risk areas. Eight tropical cyclones formed in the Australian region between January and April as a part of the 2017-2018 season, and two occurred between September and December, as a part of 2018-2019 season. Cyclone Marcus was the strongest storm that formed in the area, reaching peak wind speeds of 230 kph (145 mph) in March. Marcus weakened to make landfall as a tropical storm in Australia’s Northern Territory, and caused around AU$105 million of economic loss; however, only around AU$63 million was covered by insurance.
Australia also experienced severe storms, where the total insured loss may exceed AU$1.0 billion, with the largest insured loss event in the country for 2018, the Sydney hailstorm that occurred in December. The insured loss estimate for that event currently stands at AU$927 million, from more than 100,000 claims for damages to vehicles, homes, and businesses.
This figure is expected to rise, with some analysts expecting the final insured loss to go beyond AU$1.5 billion. The recent Sydney event looks likely to become the fifth event since 2007 that has led to more than AU$1.0 billion in insured loss.
Drought cost the local economy more than US$1 billion (AU$1.4 billion) in 2018 and led to a 20 per cent fall in yield compared to 2017, putting enormous pressure on rural communities and farmers.
The agriculture sector in Australia is particularly vulnerable to natural catastrophes. It is expected that future climate warming is likely to continue promoting drought conditions, further increasing the drought threat to the community. In Western Queensland, we’ve witnessed large livestock losses resulting from the recent monsoonal floods in northern Queensland.
What can we do?
Some steps are being taken to support the agricultural community, including a AU$2 billion federal relief package, and initiative to make insurance premiums tax exempt. The insurance industry is in a position to do more through product innovation, including parametric or index-based cover, that would encourage take-up.
The take up of crop insurance in Australia is consistently low. Neither state nor federal governments currently offer premium subsidies to encourage uptake; which is increasingly the approach adopted in other counties. Last year, this contributed to a natural disaster being magnified into a human one with livelihoods lost along with the livestock.
Lessons can be learned from other areas of the insurance industry, by making coverage more affordable to encourage the uptake. For instance, in Northern Queensland where the high risk of cyclones makes cost effective coverage hard to obtain, the Northern Australia Insurance Premiums Taskforce has been making recommendations to the federal government in how premiums can be made more affordable.
Educating clients and helping them make their property, or businesses, more resilient to natural disasters can also play a role in bringing policies within reach.
This leads us to the most important actions people can take: understand their risks in terms of key threats and potential impacts by enlisting expert help, and plan and insure accordingly. Aon has the expertise guide and advice at all stages of this preparation, including the creation of business continuity plans where applicable.
For more information on how Aon can help your organisation to manage natural catastrophes, please contact us.