On Wednesday, another giant insurer appeared before the government’s inquiry into the 2022 floods.
In her opening statement, Sue Houghton (pictured above), CEO of QBE Insurance for Australia and the Pacific, gave a convincing explanation of why this natural catastrophe was, according to her, unprecedented.
“As you have heard, the floods occurred at a point in time when the external economic environment was particularly complex,” she said. “This compounded recovery challenges in ways we hadn’t anticipated as Australia emerged from the COVID-19 pandemic.”
Houghton mentioned 2022’s challenges - including geopolitical tensions, inflationary pressures, market volatility and supply chain challenges.
“The scale and complexity of these floods was also unprecedented,” she said. “The geographic breadth of events and their persistence was remarkable.”
The result, she said, was insurers were dealing with six times the claims volume compared to an “average catastrophe.”
“This significantly added to the strain on our ability to respond,” said Houghton.
Committee member Andrew Gee, the Independent Member for Calare, whose lobbying efforts led to this inquiry, wasn’t convinced.
The MP appreciated that QBE’s submission acknowledged shortcomings in its flood performance. But he had a question about a section on page 26 of this submission.
“There’s not really a lot in that section, to be honest with you,” he said.
The section – a couple of paragraphs long – was QBE’s answer to questions about learnings and changes to claims processes as a result of the 2011 floods.
“Like many insurers that have come before the inquiry, or in fact all of you, have said, ‘Yes, it was unprecedented’,” said Gee. “But the industry’s had a long time to be able to prepare for large scale natural disasters and I’m just wondering, what lessons did you learn from 2010-11 and why weren’t you better prepared, given that you’d been through that experience over a decade earlier?”
Houghton agreed that insurers have been dealing with natural catastrophes for a long time.
“We have a catastrophe management plan which we revise after all events,” said the CEO.
She said that involves scenario planning for events that are about to occur, taking into account their “unique circumstances.”
“One of the things that I think we learned coming out of this is the stress testing of those plans needs to be different as we move forward because of the unprecedented nature of 2022 - and that can happen again,” said Houghton. “The stresses that went around our cat management plan hadn’t been tested in that way.”
She suggested that if the 2022 floods “had just been claims volume and everything else had been stable as it had been in previous events” they would have dealt with it more easily.
Houghton said one of their “key learnings” from 2022, that she said was also in the Deloitte’s report on those floods, was that the stress testing QBE does for parts of its business wasn’t done for the catastrophe management plan.
She said QBE has started to “put in place” those learnings.
Gee asked why the insurer wasn’t doing this stress testing for the catastrophe management plan before the 2022 floods?
Houghton said they were doing scenario testing “but we had a gap.”
“There were many, many things that came together that meant there was a stress test that we had not thought about,” she said. “So it was a gap and it’s something that we certainly have taken away as a learning.”
Despite the challenges presented by the 2022 floods, Houghton recognised the “immense efforts” of her claims teams.
In the wake of this disaster, she said “a range of improvements” were implemented. These improvements focused on communication, resourcing and improving oversight of suppliers.
“We are enhancing our systems and digitization capabilities through a modernization program,” said the CEO. “We are using technologies to improve our data and streamline our customers’ experience where we can.”
Following QBE, leaders from Hollard Insurance and then the Australian Financial Complaints Authority (AFCA) appeared at the government’s flood inquiry on Wednesday. The proceedings are publicly live streamed.
How do you rate the performance of insurers during the 2022 floods? Please tell us below
