Scott Commens reckons he would be in front of a coroner right now if he had followed the advice of his insurers. It’s just as well he didn’t listen to them.
Commens has run the electronic music festival Subsonic from a property near Taree in NSW since 2006. Each summer, thousands of revellers come for three days of dancing. But last year, things didn’t go to plan.
“The flames were almost at the front gate,” he says.
Surrounded by tinder-dry bushland and the air filling up fast with smoke, Commens knew the festival was in trouble. To make matters worse, the river that splits the property – used to supply water and for swimming – was bone dry. The long-running drought had sucked all moisture from the land and nearby towns were also rapidly running out of water.
Like many other Australians, Commens had been glued to the television, watching the fires spread across the country and he didn’t give up easily. He engaged experts to write fire plans and looked around for alternate venues, but to no avail.
As the flames got closer to the 270 hectare property, the rural fire service told Commens they were stretched and couldn’t guarantee the safety of anyone who attended the festival. Meanwhile, the property owners said they were simply not comfortable hosting the event.
Having pored over the advice provided by the fireys, police and the ambulance commissioner, Commens decided to cancel the festival.
Months later, his insurers would tell Commens he should have pressured the property owners to change their minds. He’s currently locked in legal disputes with Allianz and Lloyds, who say the party should have gone on.
“This claim has been referred to the Australian Financial Complaints Authority and we look forward to their determination to finalise the matter,” a Allianz spokeswoman told The Age and The Sydney Morning Herald. Lloyds was contacted for comment.
Meanwhile, Commens has been called a thief, a hopeless business man and a liar by his customers who have so far been denied ticket refunds. But he is certain he made the right call.
“We had a lot of phone calls, I had many sleepless nights but we decided in the end it would have been reckless.
“Imagine if I had run the festival, and if someone had flicked a cigarette and burnt the place down, I hate to think where I would have been right now,” he says. “I would probably be in front of a coroner.”
Commens is just one of the many Australians who have had a difficult year dealing with insurers following the horror bushfire season of last summer. One year on, that torrid season has been an eye-opener for both the insurance sector and consumers.
As the frequency of damaging climate events increases, insurers are counting their rising costs, while hoping to avoid the pitfalls highlighted last summer.
Insurers to the rescue
With global attention on Australia’s fires last summer, marked by blood red skies and families stranded on beaches, insurance consumer advocate David Keane says the industry was put on notice.
“When you have an event that was so catastrophic, it was front-page news week after week,” he says. “In that environment, everybody’s eyes were on not just the firefighting but the insurers.”
There were 5900 buildings, 1 billion animals and 1.5 million hectares of land destroyed in the fires. Around half of these were insured, the others either couldn’t afford the premiums or hadn’t updated their policies.
For those that were covered, Australia’s largest insurer IAG says 95 per cent of the 12,700 claims have now been settled. The remaining 5 per cent are still being worked through.
According to IAG’s head of claims, Luke Gallagher, the fire season started months before the first flame.
IAG’s natural perils team, made up of meteorologists and scientists, was mapping the unusual weather patterns and raised the alarm in June 2019. IAG knew it was going to be a big season and started to gear up.
The insurer, that operates brands including NRMA and Swann, assembled a major events team, where 230 staff were ready to be deployed to hotspots to start assessing damage and help customers lodge their claims. IAG had teams in Mallacoota, Bendigo and Moruya for weeks at a time.
Meanwhile, insurance executives attended crisis meetings in Canberra with Treasurer Josh Frydenberg to co-ordinate a publicly funded clean up of debris and deploy the army reserves to evacuate isolated towns.
When the evacuees from Mallacoota started arriving in Melbourne, insurance reps were there as well.
“We’d pre-booked well over 300 rooms so when they did arrive, they could rest up and have a shower before they even started to think about lodging a claim,” Gallagher says. “We paid for transport, hire cars, flights. It didn’t matter.”
But all of this comes at a cost. A report by auditing firm KPMG found insurance profits were slashed by 50 per cent this year to $2.3 billion in the 12 months to June, in large part due to the catastrophic bushfires across Queensland, NSW and Victoria.
Low investment returns and higher operating costs also contributed to the insurance margin – the industry’s key metric – reaching a seven-year low of 5.8 per cent.
However, perhaps the most severe financial impact is the cost of reinsurance – insurance bought by insurers from global companies to cover themselves for freak events.
KPMG’s Scott Guse says the bushfires pushed up the cost of reinsurance, further squeezing the sector’s profits.
“Obviously the bushfires were a significant event in Australia’s loss history,” he said. “What it has meant is reinsurers have run their models and increased the risk profile of Australia. Therefore, it means Australian insurers have to pay more for their reinsurance.”
The HIH Insurance liquidation of 2001 is considered to be one of Australia’s largest corporate collapses. A combination of fraud, greed and poor capital management saw the $8 billion insurer topple within months.
As a result, the Australian Prudential Regulation Authority has sought to prevent insurers from going under by forcing them to hold enormous amounts of capital.
Guse says insurers need to be prepared for the “worst-case scenario” – set up to withstand claims arising from a one-in-200-year event.
“They’ve described this pandemic as a one-in-100-year event, so a one-in-200-year event is even more rare,” he says. “For most companies, it’s an earthquake in Sydney.”
All of this means premiums will need to go up.
After a catastrophic event, insurers need to re-examine the risk profile of an area. The higher the risk, the more expensive the premium. “It wouldn’t be surprising to see 100 per cent increases in premiums,” Guse says of policyholders living in burnt down towns. “Events like this have a huge effect on premium price increases.”
But insurers and governments alike are aware that Australians need insurance.
IAG’s Gallagher says its vital customers educate themselves and disaster-prone their houses. “There’s a lot to do around land planning and sharing intelligence to increase community awareness.”
Insurers’ climate push
Insurers are quite literally on the front line of climate change. They are often among the first on the scene after an extreme weather event, writing condition reports and processing claims.
But as the ferocity and frequency of climate change events become more extreme, the insurance industry needs to fight back. Publicly, the insurance companies lobby for climate change “mitigation” – building flood walls, fire-proofing houses and regular back-burning.
But behind the scenes, Guse says the industry is lobbying to treat not just the symptoms but the cause – energy policy.
“Without a doubt, there is certainly some lobbying going on. It’s not as strong as that for prevention – things that are more imminent and observable.
And it seems the environmentalists might have an unlikely ally in the insurance sector.
“I think they [the government] really respect the insurance industry, they rely very heavily on the insurance industry to get the economy going again,” he said. “They are advocates and governments do listen to them.”
IAG’s Gallagher says the insurers’ response to the bushfires helped to repair the industry’s reputation. “I really think this has gone a long way to show insurance companies will be there for companies, that we do pay claims and we do pay them as quickly as possible.”
But for those who are still fighting for a claims payment, like Commens, its been a long, exhausting and expensive battle.
“I have all the confidence in the world I made the right decision to cancel,” he said. “But now I’m beyond knowing what more to say to ticket holders other than I am doing by best.”
Charlotte is a reporter for The Age.