Bushfire Commission issues warning to Australia’s market

June 8 2020 by Yvonne Lau

“The key message here is that Australia will continue to warm substantially and that is a very high confidence statement.”

It was a clear testament from Helen Cleugh, chief research scientist at Australia’s Commonwealth Scientific and Industrial Research Organisation (CSIRO).

Cleugh, along with other climate scientists, insurance market players and public/private stakeholders, joined together for the first round of hearings by Australia’s Royal Commission into National Natural Disaster Arrangements (Bushfire Royal Commission).

This first stage was a two-week discussion that wrapped up on June 5.

The Bushfire Royal Commission was established by the state to gather information and analyse data from various parties — for better preparedness, response to and recovery from natural disasters.

“The globe is warming and Australia’s climate is responding, it has warmed by 1.4 degrees [centigrade] in the last 100 years.” Karl Braganza, Australia’s Bureau of Meteorology’s National Climate Centre

Australia’s exposure to natural perils has now become unavoidable and urgent. Last season’s devastating bushfire was immensely costly — in terms of the human cost and financial burden.

The Insurance Council of Australia (ICA)’s most recent figures show the bushfires became the season’s largest loss event. They brought 38,181 claims and estimated insured losses of A$2.32 billion (US$1.52 billion). The country’s nat cat bill over the 2019-2020 summer season from four extreme weather events climbed to a total A$5.19 billion (US$3.52 billion).

What are the lessons learned from the season of disaster and from the first round of government-led hearings?

Future of Australian climate
Over two weeks, the Bushfire Commission received 50 witnesses with climate experts opening the discussions.

Karl Braganza, head of climate monitoring at Australia’s Bureau of Meteorology’s National Climate Centre, explained the country’s natural climate drivers.

“Australia is an island in the middle of two tropical pacific oceans – the Indian and Pacific. So very wet conditions, including cyclones and heavy rainfall, and very dry conditions, including heatwaves and droughts, is a natural part of our climate,” Braganza noted.

But despite this natural variability, Australia’s climate is unmistakably being affected by the warming planet. “The globe is warming and Australia’s climate is responding — it has warmed by 1.4 degrees [centigrade] in the last 100 years,” said Braganza. “From 2009 to 2019, we’ve had the hottest temperatures [ever]. 2019 was our hottest and driest year on record.”

In relation to bushfires, trends and developments show a longer fire season and “with more fire danger days during that season. The [intensity] of the worst fire danger days is becoming more severe.”

These trends don’t just mean that there will just be more warm days in Australia. It means the country is increasingly likely to see record-breaking heat temperatures — which will be strenuous on the country. It will strain Australia’s systems for resource allocation, its energy systems and health systems, warns Braganza.

Market impact
And the market has been hit hard. Australia’s P&C players suffered a double casualty this quarter, both from nat cat losses and Covid-19. The general sector saw an A$997 million (US$676 million) loss in net profit in the quarter ended March 31 2020; return on net assets also significantly declined.

For major player IAG, they have received around 9,200 bushfire claims since September 2019.

Mark Leplastrier, executive manager of natural perils at IAG, spoke in one session of the hearings. He told InsuranceAsia News (IAN) that the company welcomes the establishment of the Commission as a “critical step to learn from the ‘black summer’ fires, and to boost the resilience of [our] communities into the future.”

At the hearings, Leplastrier proposed five key recommendations for resilience — including the implementation of a national bushfire risk rating system and greater state funding to prioritise risk reduction. The full list of recommendations are outlined in a co-authored report, Severe Weather in a Changing Climate, in partnership with the US National Center for Atmospheric Research (NCAR).

“Evidence [has been provided to the Commission] that is aligned with the industry’s views on the importance of lowering risk to communities exposed to natural disasters,” Campbell Fuller, ICA

These also play into IAG’s overarching climate strategy. The company has “[supported] action on climate change mitigation, and have been involved in this space for 15 years,” he says.

IAG has released their Climate Action Plan, which details their planned response to climate change and risk mitigation. And Leplastrier’s natural perils team is an important part of this — comprised of meteorologists, scientists, climate studies experts and engineers. The team helps IAG understand the extreme weather events that impact policyholders, so the company can “accurately factor that into pricing, and critically, help customers and communities mitigate those risks.”

Investment
Just last month, IAG invested ‘multimillions’ into Digital Agriculture Services (DAS), a climate data and analytics platform, which will illustrate the impact of climate risk on agri-business portfolio and underwriting.

The idea is to reprioritise understanding and alleviating climate risks.

“Evidence [has been provided to the Commission] that is aligned with the industry’s views on the importance of lowering risk to communities exposed to natural disasters,” said Campbell Fuller, an ICA spokesperson, to InsuranceAsia News.

Campbell continued: “This is best achieved through serious investments by governments in physical mitigation and resilience programs, better land use planning and stronger building codes, along with the removal of unfair taxes on insurance. Focus has also been placed on the need to adapt to the projected impact of climate change.”

Leplastrier added that much more resilience and mitigation planning is needed. This means involvement at “all levels of government, businesses and community.”

A final, comprehensive report will be released by the Bushfire Royal Commission at the end of August.

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