Why Australia is facing a ‘devastating insurance crisis’ this summer
MCG Quantity Surveyors, which has offices in Brisbane, Sydney, Melbourne, Newcastle, Adelaide, Perth and Canberra, said that a combination of factors could lead to “one of most financially devastating” summers in recent history.
“What’s occurred with the floods in Victoria looks like an unsettling precursor for the summer ahead,” MCG Quantity Surveyors director Marty Sadlier said.
“I’m incredibly concerned this year’s La Nina will financially devastate a huge number of homeowners and investors who are substantially under insured.
“The last time a triple dip La Nina occurred was more than two decades ago from 1998 until 2001.
“Because we’ve already had two wet summers, dam catchments are up and water tables are high, so flood events this year will be more likely.
“We’re also still recovering financially from the previous two years of flooding which resulted in billions of dollars of damage throughout the nation.
“Along with the loss of life and property, these events have exacerbated other elements that will make things difficult.”
The Bureau of Meteorology officially declared that a third La Nina was underway on September 13, adding that above average rainfall was likely for eastern Australia during spring and summer.
A month later, the bureau’s long range forecast further warned of an increased risk of widespread flooding and an above average number of cyclones, with the potential for an earlier than normal tropical storm.
Since then, a relentless train of weather systems has delivered rain, storms and flooding to huge parts of the east coast, with parts of Victoria still under water.
“Residents and communities living on or near any rivers, creeks and streams or in low lying areas, especially in southern Queensland, much of inland NSW, Victoria and northern Tasmania are advised to stay up to date with the latest forecast and warnings,” a media release warned on Monday as more wild weather was forecast later this week.
To date, the insurance bill from the wild weather that slammed southeast Queensland and NSW in February and early March has hit a staggering $5.45 billion, with just over half of the 234,000 claims now closed, according to the Insurance Council of Australia.
It is the costliest flood in Australia’s history, and the fifth most costly disaster after the Sydney Hailstorm (1999), Cyclone Tracey (1974), Cyclone Dinah (1967) and the Newcastle Earthquake (1989).
But Mr Sadlier warned that a triple whammy of factors could make any widespread natural disaster this summer “financially devastating”, adding that every property owner should be checking their insurance coverage and getting their homes ready now.
RISING CONSTRUCTION COSTS
“Rising construction costs throughout the past two years means any insurance value assessments from 12 months ago could be redundant,” he said.
“Repairs to previously flooded property has seen the demand for labour and materials continue to skyrocket.
“If the heavy rains cause more widespread flooding again this year, expect to see our already strained construction industry put under further stress.”
Mr Sadlier said the fallout of such a scenario would be “dramatic” as construction costs were already at new highs, with timber going up by about 21 per cent and steel around 42 per cent.
UNDERINSURANCE
“Australia’s property owners are already substantially underinsured,” Mr Sadlier said, adding that research in 2020 suggested that a whopping 83 per cent of Australians were underinsured.
“Then in 2021, the Australian Bureau of Statistics noted that 2.44 million Australian households had no house and contents insurance – that’s 23 per cent of all Australian homes.
“In reality, I believe over 90 per cent of properties in Australia are not carrying adequate insurance.”
Mr Sadlier said many owners did not carry out proper assessments of their property’s replacement costs each year, with most just adding a “little extra to last year’s guesstimate”.
“Worse still are those who rely solely on online calculators to help them assess their insurance values,” he said, adding that online calculators failed to take into account consultants’ fees, demolition and forecast building cost inflation, allowances for site works, retaining walls, mature landscaping and additional works.
“These wildly inaccurate tools are causing major headaches for those who thought they were adequately insured.”
THE RENTAL CRISIS
Australia is in the grips of a rental crisis, with many regions recording vacancy levels below 1 per cent.
On the east coast, Sydney’s vacancy rate in September was 1.3 per cent, Brisbane was 0.7 per cent and Melbourne was 1.4 per cent.
It is even tighter in lifestyle regions that have seen significant interstate migration such as the Gold Coast and Cairns (0.5%) and the Sunshine Coast (0.7%), according to SQM Research.
“Floods will have massive implications on construction programs, add continuous strain to the supply of building materials and increase upward pressure on construction costs,” Mr Sadlier said.
“This means people will be displaced for longer periods of time and will need alternative shelter.
“A big flood would only add more demand to the rental market while also removing a swathe of supply.
“You can see how that equation will cause the currently dire rental situation to become even worse.”
Mr Sadlier said that the only thing Aussies could do was to ensure they were “financially storm ready”.
“Make sure your insurance is up to date and that it delivers comprehensive coverage,” he said.
“Most important of all is to confirm you have an updated insurance value estimate for your home that has been prepared by a qualified professional.
“This is the only way to guarantee you have adequate coverage as a safety net against the weather.”
Originally published as Why Australia is facing a ‘devastating insurance crisis’ this summer By Samantha Healy, The Courier Mail