Australian Industry Stats on Natural Disasters and Claims – what it means.
I spoke at a conference and several professional development days in the last week and shared with the group the latest industry statistics on the cost to the insurance industry arising from the natural disasters in Australia during 2011. I share them with you in the attached slide. Presentation2
I also attach a page from the ICA’s latest statistics on premiums and claims incurred to 30 September 2011 which are the latest available. GI%20Quarterly%20Performance%2020110930
Of course Australia has not been the only country to be effected by massive natural disasters. Our cousins in New Zealand have had more than their fair share with earthquake, snow storms and tornados. North America had a terrible 2011 with an earthquake, 43 tornados, as well and floods and hurricanes. Japan was struck with a massive earthquake and tsunamia but it only was front page news for a few weeks after which the focus of the world’s press moved to Libya. Chile had an earthquake, Pakistan had some of the worst flooding in its history while smaller floods were reported in Europe. Major insured losses have also come out of Thailand which has had downstream supply chain losses in many other countries. I and my colleagues at LMI have been appointed to assist on many large claims from this source.
All of this will cause and has already caused increases in premiums in property classes. With the reinsurance programs of Japanese insurers falling due at the beginning of April, further rate increases are expected due to the Japanese Insurers losses in both Japan and Thailand where the later is expected to be greater than the insured losses in Japan itself.
So what does all this mean to insureds and their brokers. Simple insurance premiums will increase. In a recent survey by Vero reported in InsuranceNEWS.com.au (5th December 2011) two thirds of businesses surveyed expected their premiums to increase and will no doubt have budgeted accordingly.
The important thing for everyone to keep in mind is that the premium is not the total cost of risk. Premiums are the cost of transferring risk from the Insured and its shareholders (and the company’s staff) to an insurer.
The total cost of risk is the cost of premiums, fees and commissions, risk evaluation and analysis, the cost of implementing and maintaining risk controls, policy deductibles and the two huge contingent liabilities that sits over most companies are the cost of uninsured and self insured losses and that proportion of insurance claims not paid to under insurance. If you are not sure what any of these are please drop me an email (or use the contact me feature on the blog) and I will let you know.
I strongly urge every business owner to think what is at stake if a loss occurs and you are not insured adequately. Not only for you, your family and your staff. For most business owners the business represents the shareholders and staff sole source of income, it is their major investment, it is their life’s work, it represents their major investment (often foregoing a better current lifestyle for their future), is often their superannuation and the mortgage over their home(s).
I will post a couple of case studies to show what can go wrong and the effect it has on the business as seperate postings rather than continue on here.
The point I want to leave you with, whether you be a broker or business owner is that what matters when the loss occurs is not the premium you have paid (0r think you have saved) but the quality of the policy coverage, the financial strength rating of the insurer, and most important the quality and speed of the claims service.