Australia bushfire insured losses soar further to US $485m (A$700m)

As anticipated, insurance industry losses from the ongoing bushfire devastation across Australia are soaring as more clarity on the number of claims comes in, with the total now reaching US $485 million (A$700 million).

The total insurance and reinsurance market loss, according to the Insurance Council of Australia (ICA), has risen by 62% in just one day now.

The figures from yesterday put the total market loss from the ongoing bushfires at US $300 million (A$431m) , based on more than 6,000 insurance claims from bushfires across New South Wales, Queensland, South Australia and Victoria since September 5th.

Today, the number has increased considerably, with the ICA reporting that claims have reached 8,985 leading to insurance and reinsurance market losses of around US $485 million (A$700m).

This figure is expected to rise much further as well, with the ICA saying that, “Many more claims are expected to be lodged in coming days and weeks.”

Currently, the fire weather situation has improved somewhat, with more humidity, a cyclone in the north and a chance of more rain over the coming days.

However, while this will make fighting the bushfires easier, it is not expected to dampen them and the threat of further spread and accelerating of the burning remains if the weather heats up again.

With the industry losses from the Australian bushfires soaring the chances of them hitting reinsurance and retrocession layers in the market increases as well.

Last week we explained that insurer IAG reported that the ongoing bushfires in Australia had triggered its aggregate reinsurance protection.

IAG said that it is managing claims from three ongoing bushfire events, but explained that losses from them have now been capped by reinsurance recoveries under its aggregate cover, after deductibles were eroded by these and other loss events.

That was the first sign that the fires would result in a reinsurance market hit, albeit not particularly significant at that stage.

Now, the estimates of losses have more than doubled since that stage, suggesting a much wider hit to insurers and likely more reinsurance claims as a result.

With insurance claims still rising rapidly and the many residents unable to get back into their homes to assess damage and file claims, the figure will continue soaring.

This current bushfire season of 2019/20 is already the second largest insurance and reinsurance industry loss from fires, falling only behind the February 2009 fires that caused over US $1 billion of market losses. There is some way to go, but that figure does not look impossible to be matched given the extent of the devastation already wrought this year.

At this stage, the impacts of the fires to tourism, as well as the effects of smoke more widely in the regions affected, which will drive some business interruption claims, have not been factored in by the insurance industry.

Insurance and reinsurance markets will continue to gain better clarity over the extent of the bushfire season losses in the coming days and weeks, with the current change in the weather perhaps allowing the fires to be dampened enough for a better picture of the damage and claims extent to become clearer.

Impacts to the reinsurance market are still expected to be relatively minor and concentrated to a few larger players at this time, particularly with such significant quota shares in place with major insurers in Australia.

But if the dangerous fires weather returns and blazes continue to escalate, there is the potential for some retrocession impact, or leakage of these claims through reinsurers own quota share arrangements, perhaps even their sidecars.