Climate Outlook Pushes Major Changes In Australian Reinsurance

[hatrack]

"FOR Mike Hawker, chief executive of Australia's biggest insurer, Insurance Australia Group, the emergence of Hurricane Frances off the coast of Florida less than a month after Hurricane Charley became the sixth-biggest world disaster since 1970 confirms his worst fear – that the world is headed for decades of more cyclones, storms, floods and droughts as a result of global warming. Hawker believes that from an insurance view point, the most vulnerable areas of Australia are southern Queensland, northern NSW and, perhaps, Sydney.

He stunned the Australian Leadership Conference on Hayman Island last week when he revealed that IAG was cutting its exposure to southern Queensland and northern NSW by reinsuring a much larger proportion of its risk from policies in this area. Global reinsurers have not increased their southern Queensland premiums because there has been no catastrophic damage since Cyclone Wanda caused vast flooding in Brisbane in 1974 (the same year that Cyclone Tracey hit Darwin).

A second Australian corporate leader, Commonwealth Bank deputy chairman John Schubert, in his capacity as a director of the Great Barrier Reef Research Foundation, told the Hayman conference that he believed the reef was in grave danger because of a combination of global warming and agricultural and other practices on the mainland.

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Groups such as Swiss Reinsurance say that the effects of global warming will be much wider than simply creating more tropical cyclones with greater wind intensities. The higher temperatures will, in the first instance, cause droughts and increase the risk of bushfires. But then the greater evaporation is likely to cause more intense rain storms and much greater flooding. There is also a strong possibility of more so-called "mid-latitude storms" like the Sydney and Melbourne hailstorms of the past five years. All three eastern capitals are vulnerable if Australia encounters more heavy rain and floods."

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