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HomeBusinessOz insurers to bear brunt of Auckland flood claims

Oz insurers to bear brunt of Auckland flood claims

Just when the Australian insurance sector was looking at having escaped any major catastrophe over the Christmas-New Year break, along comes the terrible flooding event in Auckland last Friday that looks certain to generate hundreds of millions of dollars in new claims and costs that won’t be covered by insurance.

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January saw most listed insurance companies reveal the terms of their new re-insurance agreements for the coming six to 12 months, with most revealing higher costs and deductibles (ie, the primary insurer has to wear more of the cost before re-insurance kicks in).

That was to be expected after a succession of heavy rain, storm and flood events, especially in 2022 along the East Coast, especially in Brisbane, the Northern Rivers and Central West areas of NSW, Sydney, and especially along the Nepean and Hawkesbury Rivers, along the Murray and parts of South Australia. Several areas were flooded repeatedly last year

But on Monday it was the damage bill from the heaviest rain and worst floods in history in Auckland that has so far resulted in the deaths of four people, caused damage to at least 5,000 homes and more, flooded Auckland Airport, damaged roads, triggered landslides and slips and forced all schools in the region to be closed for the next week.

The first damage reports started Friday night and have continued. Ongoing wet weather hasn’t helped and the NZ weather authorities say it will remain wet in the region for the next few days.

Major insurers operating in New Zealand including Insurance Australia Group (IAG) and Suncorp Group have received over 9,000 claims so far following severe storms and flooding in and around the biggest city, Auckland.

As of Monday morning, Suncorp’s Vero and AA Insurance brands have received about 3,000 claims, while IAG’s AMI, State and New Zealand Insurance brands have taken over 5,000 claims.

NZ insurer Tower Ltd on Monday afternoon said it had received nearly 2,000 claims since Friday, and noted that the losses so far were “substantial”.

“We have received approximately 1,900 claims for this event. Of these around 1,000 are house claims and the remainder are motor and contents claims. We expect to receive further claims as customers assess their damage,” Tower CEO, Blair Turnbull in the second statement from the insurer in 24 hours.

He said the company has “robust reinsurance arrangements with multiple (reinsurance) treaties in place. These arrangements cover house, contents and motor losses, in addition to providing $NZ934 million of catastrophe cover. The catastrophe cover has an excess of $NZ11.85 million which is within the $NZ30 million Tower has allowed for large events in FY23.

Tower said its FY23 full year guidance remains unchanged.

“This is a very significant event which will result in a lot of claims,” according to The Insurance Council of New Zealand (ICNZ).

The scale of the damages bill can be seen from a recent statement from the ICNZ. In December, the Insurance council revealed that five winter storms in July and August had resulted in at least 11,086 claims valued at $NZ123.8 million.

“This is an increase of 35% or $32.1 million on provisional reporting for these climate-related events.

We are used to reporting separately on discrete climate related events, but this is an example of something different”, said ICNZ Chief Executive, Tim Grafton. “Wave after wave of extreme wet weather led to weeks of local flooding and slips during what NIWA has declared as Aotearoa New Zealand’s warmest and wettest winter on record.”

Six months later the insurance industry has been hit by the worst weather event in history (NZ’s biggest claims are for earthquakes, such as the two in Christchurch in late 2010 and early 2011) and insurance companies expect the number of claims to rise further in the coming days, as the situation continues to unfold and customers identify damages.

NZ’s National Institute of Water and Atmospheric Research (NIWA) said that Auckland has now recorded more than eight times its average January rainfall and 40% of its annual average rainfall.

On Monday, shares in NZ-listed Tower dropped 3.5% in NZ. In Australia the share eased 1.5%.

Shares of IAG dropped 5.9% at one stage but closed 3.7% lower. Suncorp fell nearly 3% and ended the day off 1.9%. QBE Insurance shares were down 1.3%.

IAG noted it was too early to determine the financial impact of the floods, and it may review the $A909 million in natural peril costs it has estimated for fiscal year 2023, once the situation becomes clearer.

Suncorp said losses from this event will be capped at $NZ50 million as its reinsurance programme provides additional protection for New Zealand losses.

Citi, in a research note, observed that IAG’s exposure to the floods in Auckland, which could be potentially as much as $A236 million, is “much greater” than Suncorp’s $NZ50 million cap.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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