Bushfire disaster – a cautionary insurance lesson

Insurance

Our thoughts are with the families and friends of those who have tragically lost their lives during the bushfire disaster currently ravaging much of Australia.

Early statistical data has highlighted the grim reality that many Australians who have lost property in the fires will be significantly impacted financially through a lack of insurance or, equally disturbing, not having adequate insurance.

The fires, fuelled by drought and the country’s hottest, driest year on record, have been raging since September, months earlier than is typical for Australia’s annual fire season. So far, the blazes have killed 27 people, destroyed more than 2,000 homes and scorched about 12.35 million acres of land, according to the Associated Press.

The Insurance Council of Australia has said the estimated damage bill had doubled in two days, with insurance claims now reaching $A939 million for 1 November to 10 January alone.

Compare that to February 2009, when Victoria’s “Black Saturday” fires claimed more than 2,000 homes, or February 1983, when the “Ash Wednesday” fires destroyed about 2,400 homes in Victoria and South Australia.

The 2019-2020 fire season could surpass those tragedies.

The ABC has posted an article by academics Chloe Lucas, Christine Eriksen and David Bowman, who said:  “One lesson really not learnt is that home insurance is rarely sufficient to enable recovery. The evidence is that many people losing their homes will find themselves unable to rebuild, due to a lack of insurance.”

Evidence from the 2013 Blue Mountains bushfires (where about 200 homes were affected) suggests 65% of the affected homes were underinsured. The academics said: “The consequences aren’t just personal. They potentially harm communities permanently as those unable to rebuild move away.”

A common error in calculating rebuilding costs is relying on a property’s purchase price or market value. Many home owners simply deduct the land value to arrive at a sum insured. The reality is that rebuilding costs are far more expensive.

New building codes, especially in regional areas, make it more costly to rebuild many properties that were constructed in a less-regulated environment. Construction costs also spike after natural disasters due to shortages of labour and materials. That also applies to commercial properties.

Another factor is that banks can claim the value of any mortgage on a property from the insurer. That often leaves little for the home owner. Frequently home owners need to take out another mortgage to rebuild their homes.

The good news is that statistics overwhelmingly and consistently support the view that insureds who use the services of an insurance broker are less likely to be underinsured and not caught uninsured.

The JMD Ross claims department, headed by Claims Manager David Millar, is well resourced to manage bushfire claims reported by our clients and most insurers have agreed to JMD Ross clients receiving priority claims triage and treatment.

To discuss your risk management and insurance requirements, please contact:

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