'Hard Rain’s Gonna Fall': Preparing for environmental changes

As Australia experiences hotter, wetter and drier environmental conditions, the risk to property is increasing and landlords need to be prepared. 

In the words of Bob Dylan, Australia can expect more than its fair share of hard rain in the future. Changing environmental conditions are bringing fire, storms, floods and drought across the nation and, along with it, the escalating risk of property damage.

Scientists say we should prepare for an ongoing rise in temperatures, flooding and fires, which means the threat to properties will rise too, making it critical to have the right insurance to protect landlords from the financial devastation Mother Nature can unleash. 

Natural disasters kill around 90,000 people every year and affect close to 160 million people worldwide. In 2018, economic losses from natural catastrophes reached US$160 billion as almost 11,000 people died and millions were left homeless. 

In Australia and Oceania, there were 40 events that year causing losses of approximately US$1.5 billion, of which only about one-third were insured, according to Munch RE’s data. 

These losses are expected to pale by comparison with the unprecedented cost of the recent ‘megafires’ along with the droughts, floods and hailstorms that have devastated Australia over the summer of 2019-20.

The recent fires are 25 times bigger than Australia’s deadliest bushfires – the 2009 Black Saturday fires in Victoria in which 173 people died – and economists agree that the tangible costs of damage will be close to A$100 billion. If the trends continue, people without appropriate insurance will be out of pocket to the tune of A$64 billion.

In the last five years, EBM RentCover policies have paid out around $25 million as a result of weather events. Of that $12 million were storm claims, $10 million were for fires (however this figure includes all types of fire damage e.g. arson, not just fire damage due to Mother Nature), $1.6 million for floods, $800,000 for cyclones and $350,000 for lightning strikes. 

To ensure our homes are safe, the Australian Government is urging homeowners to consider and adapt to the future climate which is predicted to produce:

• about 1°C of warming, resulting in more heat waves;
• up to 20 per cent more months of drought;
• up to 25 per cent increase in days of very high or extreme fire danger;
• increases in storm surges and severe weather events; and
• a sea level rise of about 15cm.

Source: http://www.yourhome.gov.au/housing/adapting-climate-change.  

While it will be necessary to modify building design to help mitigate the risk of damage, insurance also has a crucial role to play. 

The right insurance policy means owners can protect their investment, at least financially, against a range of extreme weather events. A comprehensive landlord insurance policy should protect against environmental perils like bushfire, tropical cyclones, severe wind, floods, storms and hailstorms. But just to be clear, some environmental conditions are uninsurable, for example when the damage or loss does not result from a single ‘insured event’, such as in cases of coastal erosion where the problem develops over time.

When planning insurance, check your policy includes the events that are most likely to happen at your property. The Insurance Council of Australia has a MyHazards app where you can check current known risks of exposure to floods, cyclones, bushfires and other natural hazards for more than 11 million properties in Australia.  

Generally, insurers assess the risks of an individual property before deciding if they will offer cover and at what price. If the property is vulnerable to a particular natural peril (such as flooding, cyclone or bushfire), there may be restrictions or exclusions on insurance, or the policy owner may have to pay higher-than-usual premiums.

At EBM RentCover, all landlord policies automatically include flood cover, with no premium loading regardless of the location of the property. But flood cover is not standard in most landlord insurance policies. Some insurers will not cover it at all, especially for properties in flood-prone areas, others allow owners to ‘opt out’ of cover because the cost can be very high, while some instil low claim limits. 

It is imperative to check the fine print to know under what conditions certain events are covered (e.g. some insurers only cover flood damage resulting from rain). As is checking the coverage as it relates to the damage caused by an event. As an example, while bushfire is generally covered, loss or damage to any item caused by scorching, melting, or charring without flames is usually not.  

As Australia’s weather changes, we’ll need to flood and storm-proof our properties and generally find ways to create a ‘buffer’ against the loss and damage caused by extreme weather events. One important buffer is having the right insurance policy in place – one that provides financial protection against threats like bushfire, cyclones, flood and storm. 

And make sure you get in ahead of time. The insurance policy needs to be in place before an extreme weather event hits and most insurers will embargo new policies in certain locations, or under some circumstances, such as when weather warnings are in place.

Every investor wants a secure investment. But the wrath of Mother Nature is out of our control. What you can control, is whether you are protected by the right landlord insurance.

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.