Review into insurers’ response to the 2022 floods commissioned by the ICA released

A comprehensive review of insurers’ response to Australia’s largest ever extreme weather event has been released, setting out seven areas for action by insurers and the Insurance Council of Australia (ICA) to improve responses to future events.

Commissioned by the ICA and undertaken by Deloitte, The New Benchmark for Catastrophe Preparedness in Australia report examined the operations of eight insurers who together received around 99% of all home and contents, motor, and small business claims related to the floods that impacted northern New South Wales and south-east Queensland in February and March 2022, known as Cat 221.

The flood, which was the second largest insured event in the world in 2022, resulted in more than 240,000 claims with a total value of $6 billion, including $3.4 billion in home property claims, $710 million in home contents claims, and $304 million in personal motor claims. An additional 2,200 claims staff were employed by insurers in response to the flood.

Key findings from the report include:

• External factors made responding to Cat 221 particularly challenging, including a historically tight labour market, building materials constraints, the price and availability of new and used cars, and rental vacancy rates.
• The scale of Cat 221 tested claims processes at a scale never before seen and exposed vulnerabilities in insurers’ claims and complaint handling responses, particularly in catastrophe planning, resourcing, processes and technology, communications, and governance.
• Improvements have already been made by insurers as a result of lessons learned from Cat 221, but there is more work that can be done to continue to improve customer outcomes.
• Claim closure rates varied considerably across insurers, however speed is not the only measure of insurer performance as other factors impacted closure timeframes, such as exposure to the event, policy definitions, and the mix of claims types.

The report presents seven recommendations for improvement, noting that not all recommendations will apply to all insurers to the same extent.

1. Preparedness - Insurers should improve their catastrophe planning, particularly their preparedness for extreme catastrophes like Cat 221.
2. Customer experience - Insurers should improve the customer experience during catastrophes through better communication with policyholders and by delivering a consistent experience through claim handling and complaints.
3. Resourcing - Insurers should redesign resourcing capability for catastrophe events, with a particular focus on workforce planning and resourcing and onboarding during catastrophes.
4. Operational response - Insurers should assess what operational efficiencies could be delivered in catastrophes through process, technology, and infrastructure investments.
5. Governance and transparency - Insurers should improve their ability to capture and leverage data and insights to understand the impact of internal and external factors on performance during catastrophes.
6. Coordination with government - More effective coordination between government and the insurance industry is required to provide faster access to government funding, consistent approaches to clean-up and debris removal, and co-incentivise investment in resilience and adaptation measures.
7. Code review - The Extraordinary Catastrophe definition in the General Insurance Code of Practice should be reworked as part of the upcoming independent review.

The Insurance Council has accepted all seven recommendations in-principle. The ICA will lead the work to improve coordination with government and will refer the recommendation regarding the Extraordinary Catastrophe definition to the upcoming review of the General Insurance Code of Practice.

“The timing of this flood, which followed 12 insurance catastrophes since the Black Summer bushfires as well as the global pandemic, compounded insurers’ challenge, yet the industry is on track to finalise every valid claim, rebuild homes and repair communities, and remain prudentially strong,” said Andrew Hall, CEO of ICA.

“Repeated exposure to such events, coupled with established disaster institutions and frameworks, means Australian insurers are well placed to show the world how to respond effectively and efficiently to extreme weather events. This will always need to be weighed up against the cost impacts and keeping insurance affordable.

“Deloitte’s rigorous and thorough report provides a clear roadmap for insurers on ways in which meet this challenge and move forward on areas that have been identified for improvement.”

An independent review of implementation progress will be undertaken in the second half of 2024.

You can read the full Deloitte report on the ICA website.