The growing severity and unpredictability of extreme weather has knocked an extra $86 million off Suncorp’s half year accounts, prompting the insurer to renew calls for more government action on climate change.
Australian insurance companies have become increasingly bad at estimating the cost of extreme weather events in recent years, and on Tuesday Suncorp revealed it had done no better this year. Where last year it was bushfires, this year the culprit was rain, wind and one massive hailstorm.
In the six months to December, the Queensland-based general insurer had expected natural hazard claims to cost it $475 million, but the actual figure was $561 million.
The single most expensive event was a hailstorm in Queensland and New South Wales in October, that cost Suncorp $195 million in claims. Extreme hailstorms are among the most expensive events for insurers because of the extent of damage they cause. When they hit densely populated areas they can damage every car on the street.
Last year, a massive hailstorm that travelled from Melbourne to Sydney – smashing through Canberra on the way – was one of the most expensive events for both IAG and Suncorp.
This year, all the other major events for Suncorp in Australia were rain or storm related, with one bushfire in New Zealand.
Both Suncorp and IAG have been regularly blowing their natural hazard allowance for more than a decade. Both insurers have reinsurance that protects them from this risk up to a threshold (a threshold which IAG spectacularly overshot last year). Even so, routinely blowing the allowance pushes up the cost of reinsurance, which in turn pushes up premiums.
Research by Suncorp’s main competitor IAG last year found hailstorms, like bushfires, were becoming more common as global warming progressed. Heavy rain was also a bigger risk, as warmer air can hold more moisture, which it is then more likely to dump in violent downpours, raising the risk of both rain damage and flooding.
The research also found cyclones were likely to shift further south, threatening the heavily populated parts of south-east Queensland and even northern New South Wales.
Suncorp chief executive Steve Johnston has been an outspoken advocate for more government action on climate change, particularly for more spending on “resilience” measures, which means protecting buildings and cars from the effects of climate change.
This year’s half-year report contained no reference to climate change, but Johnston promised to continue pushing for natural hazard resilience and mitigation.
“Suncorp will keep advocating for an urgent co-ordinated response from all levels of government to make our communities more resilient to natural disasters and ensure that insurance is affordable and accessible. We are calling on the federal government to invest in well-chosen infrastructure projects that can protect communities in the long-term and provide a kick-start to jobs in the short-term,” he said.
This is something the Australian Prudential Regulation Authority, the financial regulator that oversees the insurance industry, has also called for in no uncertain terms. APRA’s former head of insurance Geoff Summerhayes last year said as much as $3.5 billion a year would need to be spent in the coming decades to protect vulnerable communities from extreme weather events. That’s nearly 30 times what governments are currently spending.
“Amid predictions that natural disasters will become more frequent and intense into the future, the task of ensuring the community is prepared for these natural disasters is becoming more urgent,” Summerhayes, who has since left APRA, said in October.
“Some of these measures are expensive, and there will be arguments over who should bear that cost. But, as with the transition to the low-carbon economy, someone will ultimately pay, and waiting to act will only lead to higher costs in the long run.”
James Fernyhough is a reporter at RenewEconomy. He has worked at The Australian Financial Review and the Financial Times, and is interested in all things related to climate change and the transition to a low-carbon economy.