Cyclone Alfred, which is set to hit south-east Queensland and northern New South Wales, is expected to cause severe financial damage, with the insurance industry bracing for claims that could exceed $2 billion. The cyclone, packing winds of up to 130 km/h, is anticipated to surpass the damage from previous storms in the region, marking the most significant event in 40 years, according to industry experts.
Insurance Australia Group (IAG) and Suncorp (owner of brands like AAMI and GIO) are expected to bear the brunt of the claims. Suncorp, which recently sold its banking division to ANZ, has reinsurance coverage up to $6.75 billion for single catastrophe events. CEO Steve Johnston has warned of an influx of claims related to flooding and property damage in the wake of Alfred, highlighting that housing in the region may not meet the cyclone-resilient standards of more northern areas.
Although it’s too early to predict the full scale of the damage, global ratings agency S&P estimates that insurers could face losses upwards of $2 billion. The recent 2022 Queensland floods cost insurers $4.3 billion, with 230,000 claims filed, marking the second-costliest insurance event in Australian history. The impact of Cyclone Alfred could rival this, but the government-backed cyclone reinsurance pool, launched three years ago, may offer some relief. This pool, with $10.5 billion in coverage, is designed to help mitigate reinsurance costs.
The Insurance Council of Australia (ICA) has also raised concerns over the growing affordability crisis in flood insurance, calling on the next federal government to create a $30 billion Flood Defence Fund (FDF) to protect vulnerable areas in Queensland and New South Wales. Recent research by the ICA shows that low-income households are disproportionately affected by flood risks, with over 70% of households at high risk earning less than $92,000 annually.
As extreme weather events become more frequent and severe, the overall financial burden on insurers continues to rise. In 2023, insurers paid $2.19 billion in claims from extreme weather events, with a significant increase in the number of claims filed. Despite a rise in premiums—up from $50 billion in 2012 to $86 billion in 2023—insurers’ profits have not kept pace with the escalating costs.
The ICA’s calls for flood-mitigation measures and a potential break-up of large insurers, advocated by Coalition leader Peter Dutton, reflect growing pressure on the industry to address affordability and market dynamics. However, it remains unclear whether this rhetoric will translate into policy.
As Cyclone Alfred approaches, the broader impact on Australia’s insurance market remains to be seen, but early estimates suggest a financial toll that could reach well into the billions.
References:
- Insurance Australia Group (IAG) and Suncorp Statements
- Insurance Council of Australia (ICA) Report
- S&P Ratings Agency Analysis
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