According to rating agency AM Best, the majority of gross losses from the recent flooding in Australia likely will be felt by the reinsurance industry, as figures from the Insurance Council of Australia (ICA) put insured losses so far in excess of AUD 2.5 billion, which is likely to rise.
The estimate reflects current claims reporting rather than an expectation of the final bill so this figure could rise as more claims are submitted.
The final insurance bill from this event, and the likely medium-term implications for the price and availability of insurance cover, will depend on a number of factors.
But the response of the reinsurance community will be crucial, as previously it has been reinsurers that have borne the brunt of recent loss events and will likely do again in this instance.
The insurance cost associated with natural catastrophes is generally subject to ”demand surge” inflation resulting from a localised increase in costs of labour and materials to rebuild.
Prices of building materials are already at inflated levels due to supply-chain slowdowns and as demand intensifies in the aftermath of COVID-19-related lockdowns.
The conflict in Ukraine has further exacerbated the upward price momentum by pushing up the price of oil and further constraining the supply of certain commodities.
Yi Ding, senior financial analyst, AM Best commented: “Insurance costs associated with natural catastrophes is generally subject to demand surge inflation, resulting from a localised increase in costs of labour and materials to rebuild.
“Prices of building materials are already at inflated levels due to supply-chain slowdowns and as demand intensifies in the aftermath of COVID-19-related lockdowns, as well as historically high oil prices and commodity shortages prompted by the conflict in Ukraine.”