Insurers and reinsurers are having to adapt to the prospect of higher frequency secondary perils and the uncertainties of climate change.
Following years of large catastrophe losses, and the record-breaking floods of February and March 2022, June and July renewals were a market-changing event for Australia.
Australia and New Zealand, at the forefront of climate change, are now key markets for catastrophe risk (the fourth largest for catastrophe reinsurance demand globally, just behind Japan).
The countries are exposed to earthquakes, bushfires, tropical cyclones, hailstorms and flooding.
Australia routinely draws comparisons with Florida, where the affordability of catastrophe cover and the balance of private market and government participation is shifting. Around 70 percent of Australia’s insurance market renews during June and July, with the focus predominantly on property catastrophe reinsurance.
Reinsurers sought significant rate increases in these months, and many were not willing to attach to lower catastrophe layers, at any price.
The market pushed for higher retentions as reinsurers sought to move to cover tail risk rather than be over-exposed to a frequency of catastrophe events.
Secondary perils, which have increased in frequency and severity, were a particular issue for both insurers and reinsurers in Australia.
With insured losses in excess of A$4.8 billion, the floods in Queensland and New South Wales in February and March are on course to become Australia’s costliest flood event ever, and its third costliest natural disaster.
Even before the floods, insurers had paid out more than A$8.9 billion in catastrophe claims in the past three years, according to the Insurance Council of Australia.
Inflation, combined with higher catastrophe losses, drove increased demand for property catastrophe reinsurance in Australia.
Some reinsurers applied conservative inflation assumptions at renewals, requiring Australian clients to differentiate themselves from higher inflation markets (such as the US) and demonstrate how they are managing the risks of claims inflation and supply chain disruption.
