Floods and fires hit Australia – again

2013 Bundaberg Flood - Source: The Australian

It seems Australia and its people cannot get a break from the ravages of bushfires and floods.

While the damage and destruction is devastating for those involved, it is good to see that the extent of damage and loss of life is less than over the past couple of years.

What is extremely disappointing to read is the research carried out by Roy Morgan Research that the level of insurance in Queensland has dropped to below the level of other states over the past 2 years. With Cyclone Yasi and the floods the hit so much of the state in 2011 showing the need for full insurance, I am staggered at this finding. My own research shows that the level of under insurance is at least as high as in 2011 and perhaps worse.

I appreciate that the cost of insurance has increased over the past couple of years due to the increased frequency of losses and the amount paid out following the spate of natural disasters that hit, not only Queensland but also the rest of Australia with fires, hail storms and floods. What should come as no surprise is that the call for universal flood insurance comes at a cost and a lot of people cannot or will not pay for the cover. The trouble is they may also forego fire, hail, storm and burglary cover at the same time. This leads to unnecessary financial and emotional distress.

I question whether the logic of some people, particularly in South East Queensland was that the last major flood in Brisbane, prior to the 2011 flood was in 1974 and that this was 37 years and so they did not have to worry for a while. If this is the case, then of course this is flawed logic as floods and other disasters can happen at any time and do not follow a smooth pattern.

Another possible cause is all the bad press that the insurance industry received following the 2011 floods culminating in the ridiculous Shonky Award from Choice to the entire insurance industry. I see they are bagging the industry again about increase costs.

Another major critic has been the mayor of Ipswich. On the one hand he states that the council has spend $100’s of thousands on flood mitigation, which in a town like Ipswich is a drop in the ocean (excuse the pun) and is saying it is the insurance industry’s role to pay claims. On the other hand he is complaining that his own premium has gone up by $3,000 and he is on a hill.

I am not sure why people do not get it. Someone has to pay for the cost of paying claims. Insurance is a pool of funds to meet losses suffered by insureds who have paid a premium to protect themselves from the peril that caused the damage. Insurance companies cannot simply print money to pay claims. They need to have the funds to meet valid claims.

What the mayor ought to do is look at the frequency of flooding in Ipswich. If you go to the Bureau of Meteorology site at http://www.bom.gov.au/qld/flood/fld_history/brisbane_history.shtml you can see clearly how often the Bremmer River floods. I reproduce the chart below.

I strongly agree with the position of the Insurance Council of Australia and many of the major insurers. The Insurance Industry cannot fix the problem of flood. Paying out billions of dollars year on year and then putting back the asset in the same place in the same way time and time again is just plain stupid.

It will require a concerted effort on the part of the Federal Government, State Governments, Local Governments, the Insurance Industry, and other stakeholders working together with meaningful flood mitigation strategies, not a few hundred thousand dollar band aid.

I will revisit this topic over the next week and set out a more detailed look at this issue.

While I feel the Insurance Council of Australia responded much better this time around than after the 2011 floods, I am of the strong view that as an industry we need to get our message out in a positive way before disasters and not just in response to public or government criticism.

While this debate goes on, my heart goes out to all those that have been effected by the lastest round of natural disasters. For those of you not effected, remember we are not through the summer cyclone, storm, flood or fire season. Please speak to your insurance broker to ensure you are fully insured.