Insurers will receive a very costly damages bill from the fires currently destroying lives and property in Los Angeles – some estimates suggest more than US$50 billion. The prospect of those damage claims follows a similar insured losses sum from 2024’s tropical cyclone season. What can brokers expect in terms of the impact on insurance costs in Australia?
In line with these extreme losses, Scott Hawkins (pictured above), managing director of Munich Re Australasia, expects the price of primary insurance and reinsurance to go up.
“Where losses exceed premium both due to actual experience as well as new information, suggesting that future losses will remain at a higher level, then prices will increase in both primary and reinsurance,” said Sydney-based Hawkins.
Hawkins was interviewed by Insurance Business in December, before the current LA fires.
He said Australia, compared to many other countries, is exposed to many perils and has a disproportionate exposure profile.
“There is a real need for reinsurance protection in Australia given the inherent volatility in natural peril losses and this will continue,” said Hawkins.
Despite the global situation, Australia’s 2024 was comparatively light for nat cat losses. Insurance Business asked Hawkins if that will make much difference to insurance prices and reinsurance costs locally?
“One year of less than average losses experience will not have a material impact given the many previous years of well above average loss experience,” he said.
Hawkins said Australia’s exposure profile and the changing climate both point to a loss experience that’s set to increase over time.
IB asked the Munich Re MD about cyclone insurance in Australia and the government’s establishment of a cyclone insurance pool to help make these often extreme premiums more affordable. Are these losses becoming too much for the industry to bear?
“There is ample risk appetite for protecting cyclone exposures in Australia and to diversify this risk globally provides a real benefit to Australians,” said Hawkins. “Current reporting by the cyclone pool has also highlighted that the premium savings from the pool have not materialised to the level suggested when it was setup.”
He said there is no indication that the loss burden from cyclones is too much for the industry to bear.
This month, Munich Re released its annual 2024 NatCat Report.
“Climate change is showing its claws,” said the giant reinsurer’s media release. The firm’s report described 2024 as “a loss-heavy year for the insurance market.”
Australia may have experienced a light year for nat cats but that wasn’t the case globally. According to Munich Re’s reports there were US$140 billion in insured losses. Hurricanes, thunderstorms and floods were the main loss drivers.
“One record-breaking high after another – the consequences are devastating,” said Thomas Blunck, member of the board of management. “The destructive forces of climate change are becoming increasingly evident, as backed up by science.”
Blunck said societies need to prepare for more severe weather catastrophes. According to the release, since 1980, only two other years have generated more losses.
The release said hurricanes Helene and Milton, which struck the US in September and October respectively, were 2024’s “most destructive disasters.”
In terms of human life, Typhoon Yagi was the deadliest nat cat of 2024.
“Around 850 people were killed when it swept across the Philippines, the Chinese island of Hainan, the southern tip of the Chinese province of Guangdong, Vietnam and Myanmar,” said the release.
Another major industry player released a nat cat report in October. This report covered economic and insured losses up until Q3 2024 and so didn’t include hurricanes Helene and Milton that came later in the year.
Until they struck, 2024’s losses were below average.
Consulting firm Finity’s recent Optima 2024 report highlighted the ongoing serious threat nat cats pose to insurer profitability.
“Finity calls out the range of potential headwinds facing the industry, with natural perils volatility and the impacts of climate change, ongoing claims inflation, economic uncertainty, and a softening commercial lines market,” said Pravesh Ponna, a principal at the firm and lead author of the report.
Are you a broker with customers impacted by nat cats? What more needs to be done to make their insurance affordable? Please tell us below.
