Floods may cost insurers up to $8b

A submerged street in Brisbane. Photo / Getty Images

The Queensland floods may cost insurers and reinsurers worldwide as much as US$6 billion ($7.8 billion) in what might be Australia's costliest disaster in history.

Insured losses from the deluge in and around Brisbane might be as high as US$4 billion, while damage from floods further north late last year might cost US$2 billion, said Milan Simic, managing director of catastrophe modeller AIR Worldwide.

Political pressure is mounting on Australian insurers, which include Suncorp Group, Insurance Australia Group and QBE Insurance Group, to pay claims as residents assess damage. Those companies are spared from the bulk of the costs by policies designed to pass on the bill.

"They would all have significant reinsurance protections," Simic said.

"Any losses that they experience would cascade to, say, the Bermuda market, the London market and all the other international reinsurance centres."

Damage of US$6 billion would rank as Australia's most expensive disaster since at least 1980, based on a list compiled by Munich Re, the world's biggest reinsurer, of the nation's 10 costliest natural catastrophes in the past 30 years.

Insurers paid US$2 billion on a Sydney hailstorm in 1999 and US$1 billion on a Newcastle earthquake in 1989, according to AIR. Those losses weren't immediately comparable to the floods because they weren't adjusted for inflation, Simic said. The scale of the disaster may be unprecedented as more than 70 towns and cities in the state have been hit.

Australia's insurance industry had received more than 7000 claims worth A$365 million ($472 million) tied to the floods, the Insurance Council of Australia said yesterday. The figures don't include Brisbane and Toowoomba, where this week's disaster started with a flashflood.

Suncorp, the biggest Brisbane-based insurer, has fallen 7.3 per cent since December 1 on concerns the floods would eat into earnings. Insurance Australia Group added 2.1 per cent. The benchmark index gained 4.4 per cent in the same period.

Policy limitations might shield insurers from many of the losses tied to business interruptions and costs incurred in rebuilding properties and infrastructure, Simic said.

"Most companies have coverage against tropical cyclones and earthquakes," Simic said. "But flood coverage in Australia is relatively sporadic. It's not universally given."

Prime Minister Julia Gillard called on insurers to extend "as much compassion as they possibly can" in Queensland. Opposition leader Tony Abbott yesterday urged them to honour policies. Customers who had paid premiums shouldn't be undone by "fine print", he said.

Suncorp said this week that reinsurance would limit the cost of claims from the floods since January 8 to no more than A$90 million. For the fiscal first-half ended December 31, Suncorp expected to incur costs of between A$130 million and A$150 million from the first deluge that struck central and southwest Queensland from December 25.

"Suncorp is accustomed to responding to major-scale incidents and always treats its customers with compassion," said spokesman Jamin Smith. "Suncorp's personal-insurance policies cover for floods automatically. There is no fine print."

- BLOOMBERG