Floods in Australia to cost global insurance industry US$ 6 b

The Queensland floods may cost insurers and reinsurers worldwide as much as US$ 6 billion in what might be Australia’s costliest disaster in history.

Insured losses from last week’s deluge in and around the capital Brisbane may be as high as US$ 4 billion, while damage from floods further north late last year may cost US$ 2 billion, reports Bloomberg citing Dr. Milan Simic, Managing Director of catastrophe modeler AIR Worldwide.

Political pressure is mounting on Australian insurers, which include Suncorp, Insurance Australia Group and QBE, to pay claims as residents return home to assess damage. “They would all have significant reinsurance protections,” Dr. Simic said in an interview. “Any losses that they experience would cascade to, say, the Bermuda market, the London market and all the other international reinsurance centres.”

Insurers in Australia have received more than 7,000 claims worth A$ 365 million (US$ 361 million) tied to the floods, the Insurance Council of Australia said last Friday. The figures do not include damage in Brisbane and Toowoomba, where last week’s disaster started with a flashflood that swept through the town.

They also do not include industrial and mining claims, the council says. More than 70 towns and cities in Queensland have been hit by the floods. An area larger than Texas and California combined has been declared a disaster zone by Queensland Premier Anna Bligh.

Policy limitations may shield insurers from many of the losses tied to business interruptions and costs incurred in rebuilding properties and infrastructure, Dr. Simic said. “Most companies have coverage against tropical cyclones and earthquakes,” he said. Flood cover is not a standard component of most household and business insurance contracts in Australia

The London insurance market says that it will “undoubtedly have some claims to pay” as a result of the disaster but says it is too early to estimate what the overall impact will be, according to the Thisismoney, a UK-based financial website.

Lloyd’s is likely to have provided some reinsurance to general and household insurance companies with liabilities in Queensland as well as insuring some businesses and individuals. It could also be hit with business interruption claims from mining companies such as Rio Tinto, Anglo American, BHP Billiton and Xstrata since most of them have been forced to suspend operations in the region.