Natural disasters prove costly
Indeed, the concern over business interruption has climbed two places to be the fourth most significant risk ranked by businesses this year.
Aon Australia says the change can be attributed to the floods and fires of recent years, with many businesses still feeling the effects of the disaster.
Events such as Queensland and NSW floods "have left many organisations contemplating business interruption exposure from a vertical or supply chain perspective, due to the consequent impact on their customer base," Aon said in its latest Australasian Risk Survey.
Australia's costliest natural disaster in recent years has been the summer floods and cyclone that pummelled Queensland two years ago.
The total insurance cost of the disaster is expected to come in at about $3.8 billion, according to Insurance Council of Australia figures. This is on top of more than $1 billion last summer after flooding swept across NSW and Queensland.
The bulk of insurance payments were used for rebuilding, replacement costs and business interruption payouts. Payouts can also include cash advances to ensure communities and businesses have an income during a crisis.
Flooding regularly tops insurance payouts when it comes to natural disasters as the damage can often be over a large geographical area. Fittings and equipment often need to be fully replaced, while buildings can sustain substantial damage.
Flooding regularly hits 7 per cent of residential and business addresses in Australia, causing on average about $450 million in annual damages, according to ICA figures. However, payouts from year to year can often be higher.
While business and home owners can take measures to minimise damage caused by flash flooding, insurers argue that more can be done by governments to spend on disaster mitigation. Of the $110 million spent by various levels of governments over the past four years, to protect communities from natural disasters, only a small proportion has been spent on protection from floods.
The insurance industry argues that projects to mitigate damage from floods - including building levees and diverting waterways - should be prioritised nationally.
Indeed the Insurance Council of Australia says improvements in stormwater and drainage works should be a priority for flood-prone areas. "The failure or inadequacy of public stormwater mitigation accounts for approximately a third of water damage experienced by property owners during large rainfall events," the ICA said in a recent submission.
Frequently Asked Questions about this Article…
Aon's annual Australasian Risk Survey found concern over business interruption from natural disasters has risen two places and is now the fourth most significant risk for businesses. Aon Australia links the change to recent floods and fires that continue to affect organisations and their customer bases.
According to Insurance Council of Australia (ICA) figures cited in the article, the summer floods and cyclone that hit Queensland two years ago are expected to cost about $3.8 billion in insurance payouts. In addition, more than $1 billion was paid after flooding across NSW and Queensland last summer.
The article says the bulk of insurance payments go to rebuilding and replacement costs and business interruption payouts. Payouts can also include cash advances to help communities and businesses maintain an income during the crisis.
The ICA estimates flooding regularly hits about 7% of residential and business addresses in Australia and causes roughly $450 million in average annual damages, although year-to-year payouts can be much higher.
Investors should check whether a company operates in flood- or fire-prone regions, how vulnerable its supply chain and customer base are to interruptions, and whether it has adequate insurance or contingency plans. The article highlights businesses are increasingly contemplating vertical and supply-chain exposure after recent floods and fires.
The insurance industry and the ICA recommend prioritising projects that mitigate flood damage nationally—examples cited include building levees, diverting waterways and improving stormwater and drainage works. The ICA notes inadequate public stormwater mitigation accounts for about a third of water damage during large rainfall events.
Yes. The article states homeowners and businesses can take measures to minimise damage from flash flooding, though it doesn't list specifics. It also notes insurers argue more public spending on flood protection would complement private mitigation efforts.
Rising natural disaster costs tend to increase insurance payouts and business interruption claims, which can affect company cash flows and insurer losses. The article points out that flooding often tops payouts and that variability in yearly losses is high, prompting calls from the insurance industry for stronger national flood mitigation to reduce future costs.
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