How much have Australia’s two biggest global insurers, QBE and Insurance Australia Group been impacted after the second round of big, expensive floods in Britain in a month?
Both Australian companies, the country’s biggest, are major players in the British market, while QBE is also a significant operator on the Lloyds re-insurance market.
The Association of British Insurers has already put the cost of the floods late last week and on the weekend at “many hundreds of millions of pounds.”
This is after the floods late last month cost an estimated $1.5 billion pounds, or around $A3.3 billion.
QBE operates in general insurance, especially in certain types of risk such as insuring business and business continuity. IAG is the fifth biggest car insurer in the UK after a purchase last year, and has other products like motor vehicle, home and contents (property and casualty lines).
Reports yesterday say UK insurers are facing claims of up $4.4 billion (around 2 billion pounds) after the floods in central England and Wales.
The Association of British Insurers said in a statement that it was more than likely the final cost could top the two billion pound level, after flooding a month ago cost around 1.5 billion pounds, or around $3.3 billion.
Other British insurers have already paid out hundreds of millions of dollars in claims on the earlier floods. Norwich Union says it has paid out 155 million pounds on the late June floods alone.
And, when taken with the cost of the floods and storms in NSW and eastern Victoria in June and recent flooding in the southern Midwest of the US (in Oklahoma and Texas especially), there’s every chance home and motor vehicle insurance premiums in Australia will rise next year.
That’s because the big insurers here and in the UK will have to cover the cost of the damage and associated claims. And if they go to reinsurers for additional funding, they will find that the cost of their insurance premiums will rise next year. That will produce a knock on effect down the line.
British insurers say it could be worse than the previous biggest year for storm-related claims in 1990 which then totalled 2 billion pounds (and was worth a lot more back then).
The other point is that big, costly events like these storms and floods cut the capacity of the market to provide coverage, even with a rise in premiums.
Some people in the Hunter Valley, central Coast and eastern Victoria will find their home and contents and motor vehicle insurance costs will rise. Some people might find they can’t get home and contents cover.
IAG and QBE have already had to payout the best part of $200 million in Australia from the June flooding and storms in the Hunter and Central Coast areas of NSW.
IAG has already used up its own excess in that it has met the cost of its claims up to a certain level and will now access its reinsurance arrangements to cover the rest. QBE has said its Australian claims are within an acceptable level, meaning that it can meet them from its own resources without calling on reinsurance.
But the potential claims in the UK will be much, much bigger and the cost of the damage at over $4 billion and rising will be up to 10 times that of the NSW and Victorian floods.
IAG looks to be in a more exposed position compared to QBE which has most of its businesses with corporates.
The 1.5 billion pound estimate for the late June floods came from the UK Chartered Institute of Loss Adjusters and the Association of British Insurers, which said domestic claims could reach 825 million pounds while those from businesses could reach 680 million pounds.
Last weekend’s floods and damage seem much larger and the rescue effort was the RAF’s biggest peacetime evacuation in Britain.
More accurate estimates won’t be available until later this week but investors would be advised to keep an eye on both companies.