Five natural disasters and their impact on insurance

The five biggest natural disasters in Australia’s history came at a total cost of almost $35 billion in insured losses – and had long-term implications for insurance. Read on to find out more… 

The February/March 2022 floods that inundated parts of South East Queensland and New South Wales hold the dubious title of Australia’s costliest natural disaster. But this wouldn’t be the case if the insured losses from historic catastrophes were costed in today’s money. In fact, those floods would only be the fifth costliest. The Insurance Council of Australia (ICA) did the sums – factoring in inflation, changes in property numbers and values, and stricter building codes – to reveal the costliest natural disasters, from an insured losses perspective, in Australia’s history. 

All hail the 1999 storm  

With losses normalised to 2023 values, the 1999 Sydney hailstorm would top the list as Australia’s biggest insurance catastrophe.  

During the early evening of 14 April, a severe hailstorm swept north across Sydney’s inner and eastern suburbs causing extensive damage to homes, businesses and vehicles. The storm hit 85 suburbs, causing damage to 24,000 houses including windows, roofs and skylights. Some 70,000 cars sustained windscreen and panel damage.  

With hailstones the size of cricket balls hitting the city at more than 200 kilometres per hour, $1.7 billion in insured losses were recorded. In 2023 dollars, the catastrophe would have an estimated loss value of $8.85 billion. 

The extent of the damage was felt across the building industry with flow-on effects for insurance. Several of the high impact areas were older, affluent, medium density suburbs with many houses pre-dating 1930 and predominantly roofed with terracotta tiles. Around 12 million terracotta tiles were required – equal to about one million square metres – leading to supply delays and pushing out repair times. Sourcing slate, which was used in several buildings such as government buildings, churches and schools, also proved difficult with most having to be imported from Wales. As a result, roofers were in high demand but short supply, and needed to be brought in from other states and from overseas. 

The ICA reported at the time that some of the major insurance companies had indicated that claim timelines would extend out to between three and five years. 

Analysis of this hailstorm led to the conclusion that the event was not a “once-in-a-lifetime” event from a hazard perspective. As a consequence, risk modelling (which is used to help price insurance) was refined, with Moody’s RMS finding that Sydney would experience hail losses of around $1.5 billion (in 2019 dollars) every decade or two.  

Interesting fact: The hailstorm called for the largest deployment of aerial appliances (cherry pickers) for any single event in the world. 

Tracy ruined Christmas 

The second costliest natural disaster is Cyclone Tracy.  

In the early hours of Christmas Day 1974, Cyclone Tracy swept through Darwin. Wind gusts reached 217 kilometres per hour (before the anemometer was destroyed), there was a storm surge of 1.6 metres in Darwin’s harbour, and 255 millimetres of rain fell in 12 hours overnight. Seventy-one people lost their lives and 80 per cent of the city was devastated. Some 10,000 homes were totally destroyed and about 70 per cent of houses suffered serious structural failure.  

The insured losses were put at $200 million. In today’s money, the cyclone would have resulted in an estimated $7.4 billion in losses. 

Cyclone Tracy produced stronger and longer cyclonic winds than anyone thought possible. Sixty per cent of houses in Darwin were damaged beyond economic repair. The Commonwealth Government, which owned many of the houses, realised that the city needed to be able to better withstand cyclones. As a result, the Government commissioned scientists to develop more rigorous building codes. Cyclone mitigation is now required under the building code.  

Despite the cyclone mitigation measures in place, losses from cyclones in northern Australia continued to mount, to the point where very few insurers were willing to take on the risk. For decades, cover for properties in cyclone-prone areas has been difficult to obtain and, when available, often cost-prohibitive. This issue is being addressed with the Northern Australia Cyclone Reinsurance Pool initiative.   

Interesting fact: Upon learning of the cyclone, the newly-formed National Emergency Operations Centre swung into action – sending navy ships into Darwin and organising the biggest air evacuation in Australian history (more than 30,000 people). 

All shook up in Newcastle 

The Newcastle CBD earthquake in 1989 ranks as the third costliest catastrophe. 

At 10.27am on Thursday, 28 December 1989, Newcastle was devastated by a 5.6-magnitude earthquake. The epicentre was approximately 15 kilometres south-west of the Newcastle CBD. The quake claimed 13 lives and 160 people were hospitalised. Damage to buildings and facilities occurred within a 9,000 square kilometre region. Around 50,000 buildings were damaged, approximately 40,000 of which were homes. Around 300 buildings were demolished by the quake. In total, some 300,000 people were affected and 1,000 were made homeless.  

The original damage bill came in at $862 million. In 2023 dollar terms, the earthquake would have incurred $6.54 billion in insured losses. 

As a result of this earthquake, the Australian Building Code standard AS 2121, which relates to seismic provisions, was revised. The revised building code made it necessary for buildings to be designed and built to better withstand earthquakes. 

Catastrophe loss modelling for the insurance industry was in its infancy when the Newcastle earthquake occurred. Through the founding of Risk Frontiers in 1994, enabled by the sponsorship of the insurance industry in Australia, the Newcastle earthquake spurred the development in Australia of quantitative methods of estimating catastrophic losses from natural disasters based on validation against comprehensive catalogues of historical losses. With this data, insurers can better understand the risk and better design policy coverage and price premiums.  

Dinah devastates Queensland coast 

Losses from Cyclone Dinah, which hit Queensland in 1967, made this catastrophe the fourth costliest. 

Forming on 22 January in the South Pacific basin, two days later the disturbance was upgraded to a tropical cyclone by the BoM and was named Dinah. It became a severe tropical cyclone on 27 January and then passed through the Great Barrier Reef as a Category 4 severe tropical cyclone before battering Fraser Island on 29 January. The system went on to cause extensive damage on Heron Island. Although Dinah remained offshore, its outer rainbands caused heavy rains and gusty winds that caused floods and landslides along the Queensland and New South Wales coasts.  

The $33.5 million in insured losses translates to an estimated $6.19 billion by today’s standards.  

According to the ICA report prepared by James Cook University Cyclone Testing Station with Risk Frontiers, Climate Change Impact Series: Tropical Cyclones and Future Risks, the total cost of tropical cyclones in Australia between 1967 and 2022 was $23 billion. The report found Australia’s modern houses are not resilient to the tropical cyclone hazard of today and houses built prior to the 1980s may need to be retrofitted to better protect the lives and assets of Australians. It calls for the National Construction Code (NCC) to consider the principle of resilience for all new property construction. Without property being better built, the risk of damage and loss will remain high – impacting the availability and cost of insurance. 

Interesting fact: Four cyclones made the top 10 costliest catastrophes list. In addition to Tracy and Dinah, Cyclone Wanda (Queensland, 1974) ranked sixth with $5.26 billion in insured losses (original losses of $68 million) and Cyclone Elaine (Queensland, 1967) ranked tenth with $2.74 billion in losses ($12 million).  

Australia’s costliest floods 

Last, but by no means least, the 2022 South-East Queensland and New South Wales floods place fifth in terms of costliest catastrophes. 

Between 23 February and 7 April, South-East Queensland, Wide Bay–Burnett, and parts of coastal New South Wales suffered catastrophic floods. By the end of the first week in March, southern Queensland and parts of New South Wales had each received more than a year’s worth of rainfall. Images of swirling floodwaters and the devastation that followed captured worldwide attention, with the floods recognised as one of the most devastating in the nation's history.  

With some 244,000 claims lodged, the bill for these floods has topped $6.12 billion – making these Australia’s costliest floods. 

According to the ICA, flood events accounted for more than 54 per cent of losses from declared insurance events in the last five years. In 2022 alone, more than 300,000 claims totalling more than $7.4 billion in losses were made. Considering the frequency and severity of claims (which are predicted to increase in the years ahead), the insurance industry has had to reassess providing flood cover for high-risk properties. Different insurers have responded differently, with some limiting cover or not offering flood cover as standard (only available as an add-on), others increasing premiums, and others still no longer offering flood cover at all. 

A Parliamentary Inquiry into insurers' responses to 2022 major flood claims was launched (with a report due by the end of September). In addition, several organisations, including the ICA, have investigated the impact of the floods and made recommendations in relation to building resilience including reviewing where development takes place, buy-back schemes, building codes, and insurance matters including proposing the introduction of a flood reinsurance pool (similar to the cyclone pool). 

Interesting fact: After the 2011 Brisbane floods ($2.3 billion in insured losses), a standard definition of “flood” was introduced in June 2012 that applies to home and contents, small business and domestic strata-title policies.        

To sum up 

Natural disasters occur with disconcerting regularity in Australia. All are devastating, but some get imprinted on our collective consciousness due to their extremity. In the world of insurance, some catastrophes are also indelibly inked in the memory and on the balance sheets due to the extreme losses incurred. When the industry is faced with major catastrophic events, it can reverberate through the industry and lead to changes which can affect policies and policyholders – as some of these costliest disasters have shown. 

If you have questions about cover for natural disasters in any EBM RentCover landlord policy, please chat to a member of our Expert Care team – 1800 661 662.