Recent catastrophes spark pivotal nexus for insurance
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Mother Nature has upped her game, and the effects continue to reverberate throughout the industry. One leading strata underwriting agency traces the impact and contemplates the future
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THE DYNAMIC relationship between the growing effects of climate change and companies insuring against those effects has gone into overdrive in the last few years, and the strata market is no exception.
Many of the recent issues swirl around the aftermath of the Southeast Queensland/northern New South Wales flooding in late February and early March 2022 – or CAT221 under Insurance Council of Australia insurance catastrophe nomenclature.
The 2022 floods were a wake-up call for the industry. They have turned out to be the highest insurance loss event in Australian history when adjusted for inflation, with more than 243,000 claims valued at over $6.1 billion to date, nearly double the next-highest loss value. This has also sparked a government inquiry into the industry’s response to the disaster, as well as reports calling for a rethink on how to insure natural catastrophes in an era of more extreme weather.
CHU Underwriting Agencies (CHU) is one of Australia’s largest and most awarded insurance underwriting agencies and the leading strata specialist, underwriting over 120,000 schemes across Australia, protecting over one million apartments. CHU specialises in providing comprehensive insurance products for strata schemes, including residential strata apartments, units, villas and townhouses, and commercial strata and community title properties. It also offers personal insurance to protect strata customers’ personal property and possessions. CHU is part of the Steadfast Group, and its policies are underwritten by QBE Insurance (Australia). It is a five-time winner of the Australian Insurance Industry Awards Underwriting Agency of the Year.
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10 costliest insurance loss events in Australia*
SE Qld/Nth NSW flood
“Our Catastrophe Claims Team is now a permanent team of
11 people that will service future catastrophes”
David Gow,
CHU
Climate change has raised the bar, and the insurance industry is in the process of grappling with how to up its game to reach the new heights demanded of it.
One company at the forefront of change is leading strata underwriting agency CHU. Head of claims David Gow has a front-row seat to the industry transformation underway and is positive that the industry can rise to the challenge.
As a member of the ICA Catastrophe Response Taskforce, Gow had access to real-time situation data during the 2022 event, and it was immediately clear that a serious disaster was unfolding as claims numbers quickly surpassed levels seen during other recent flooding events.
“The volume of water that inundated Lismore, a city that’s no stranger to flooding, was unprecedented, surpassing previous recorded high marks.”
CHU mobilised its own disaster response team, which included a specialist catastrophe claims team and assessors.
“We accessed CHU experts from across the organisation; it was an all-hands-on-deck situation,” Gow says.
Gow recognised that the increase in response capacity would need to become a permanent fixture. In 2022, the CHU claims team grew from 36 to 75, plus 30 in the CHU Assess team.
“In the past we would ramp up a team then wind down, [but] after the multiple events in 2021 and then the ‘Big Cat’ in 2022 this was no longer practical. Our Catastrophe Claims Team is now a permanent team of 11 people that will service future catastrophes,” Gow says.
“These claims consultants are experienced in handling large volumes and high-impact claims and have special training in working with vulnerable customers.”
CHU is also investing in technology that will allow a large
Despite efforts to improve preparedness, problems remain for strata. The increase in extreme weather events such as the 2022 floods, and the resulting large losses, have also been a major driver of claims inflation. This can be clearly seen in the growing gap between strata premium growth and claims costs growth.
A number of industry voices have called for longer-term solutions providing subsidised reinsurance for flooding everywhere in Australia through the Australian Reinsurance Pool Corporation (ARPC). This $10 billion government-backed program covers household strata and small business property insurance policies in cyclone-prone areas, mainly in northern Australia.
“The positive impact of the ARPC cyclone pool is clear,” Gow says. “We’re seeing premium reductions in Western Australia, Queensland and the Northern Territories of 25%
and sometimes even up to 50% in the far north of Queensland.”
One factor raised about ARPC in practice is the timing. The Cyclone Reinsurance Pool expires 48 hours after landfall, but most of the water damage occurs well after that. This is the subject of some controversy, and some sections of the community are calling for the period to be extended to five days.
“The ARPC is a positive step towards alleviating these pressures in some instances; however, more government support is still needed,” Gow says.
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Lifting capacity for more frequent and severe weather events
Published 26 Feb 2024
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“There is a significant benefit to all stakeholders of strengthening new homes and strata buildings against extreme weather events”
David Gow,
CHU
2022
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Eastern Sydney hailstorm
1999
Black Summer bushfires
2019/2020
NSW East Coast low
2007
Cyclone Debbie
2017
Newcastle earthquake
1989
Cyclone Yasi
2011
NSW, Qld, ACT and Vic January hailstorms
2020
Brisbane flooding
2011
Cyclone Tracy
1974
Premium growth vs claims growth in strata
Jan 14
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Source: Insurance Council of Australia
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Nov 14
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Source: CHU
volume of claims to be lodged in a batch, as well as in ways to identify and track the claims as soon as a catastrophe is declared.
Narrowing the gap created by a bigger climate threat
At the same time, the industry is keenly aware of its own limits. The October ICA report highlighted that the 2022 catastrophe exposed inadequacies in existing scenario planning, and the gaps in systems and processes.
One of the report’s recommendations is to strengthen preparedness. This is reflected in the renewed focus insurers are placing on boosting measures to mitigate fallout from extreme weather.
The ICA report also suggests that improving the resilience of buildings could save $4 billion annually and advocates for the National Construction Code to include a definition of building resilience. It also calls for an explanatory statement and updated handbook on durability.
“There is a significant benefit to all stakeholders of strengthening new homes and strata buildings against extreme weather events … targeting specific vulnerabilities, such as wind-driven water ingress for cyclones and ember attack protection for bushfires,” Gow says.
At insurers, efforts are being made to improve communication, operational response and resourcing in line with ICA recommendations. CHU has already introduced several technology enhancements allowing increased transparency during a claims event, such as real-time access to a customer’s claim file.
CHU has recently integrated its self-service policy and claims management system StrataTech with the ENData platform used by assessors, builders and repairers to manage strata property end-to-end claims processing. This integration reduces costs, lightens workload and improves visibility on claims repairs. It creates a seamless link between all stakeholders in the claims process, empowering brokers and strata managers with critical and real-time updates, resulting in more efficient claims resolution.
“All the information for brokers is there as it is automatically and instantly updated as the builder conducts activity,” Gow says.
The changes made by CHU since the 2022 catastrophe were front of mind when preparing for Cyclone Jasper in December 2023 (CAT232). This event turned out to be minor in comparison, but after every event the industry is in better shape to respond.
Calling for further action around reinsurance
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Contact Us
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