Equitably priced flood insurance unaffordable
Insurance companies are not providing flood insurance to people living in flood-prone areas because to do so “on the basis of equitable pricing” would make it unaffordable.
That is one of the simple bottom lines of the latest JP Morgan Deloitte General Insurance Industry Survey released this week, which makes no bones about the manner in which the recent bout of natural disasters experienced around Australia will drive up personal line premiums.
The study, the eighteenth produced by the two companies, reveals an Australian general insurance industry recovering from the global financial crisis but struggling to restore profitability in the face of above average claims over the past three years.
Looking ahead, the survey made clear that personal line premium rates were likely to continue increasing through 2011 with forecasts of an increase of 8 per cent even before the floods in Queensland, NSW and Victoria.
However the survey analysis found that there were no simple answers for insurers in seeking to better address flood situations in Australia, given that flooding affects more people on an annual basis than any other form of natural disaster.
The study said that unlike other natural perils such as cyclones and earthquakes where damage was spread over a large area, flooding generally affected the same properties – those geographically close to the water source.
“Therefore, given a flood return period of, say, one in 30 years, the cost of insurance for properties close to a water source is likely to be very large,” the research analysis said. “This results in insurance for most risk-prone properties, if priced equitably, being unaffordable”.
Looking at the broader issues confronting the general insurance sector, the research identified the evolution of the Internet and the use of mobile phones, staff shortages, the impact of global warming on extreme weather events, and the impact of a tighter regulatory environment.
AUTHOR
Mike Taylor
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