What do increased weather events mean for insurance costs?

What do increased weather events mean for insurance costs?

Insurance costs for SMEs have continued to increase over the past few years. One of the main drivers for these increases is a rise in major weather events, notably the severe rain storms and floods that were recently experienced on the east coast of Australia.

Evidence for these escalating weather disasters is provided by a recent study which has shown an alarming 40% increase in rapid rain bursts in Sydney over the past twenty years. These are heavy rain storms that last for less than 60 minutes, often only 10 minutes, and are typically localised, whether part of a larger storm or not.

They deliver a huge volume of rain over a small area resulting in destructive flash flooding as the ground is unable to absorb so much water so quickly. However, the article concludes that these flash floods are due to climate change rather than weather events such as El Nino. This suggests that similar destructive events are likely to continue, resulting in increased insurance costs for SMEs for the foreseeable future.

Impact of weather events on insurance costs for SMEs

The destructive price of weather events for SMEs, such as severe storms and flash flooding, eventually leads to increased premiums as providers struggle to deal with a massive increase in claims frequency and expense.

Every year, insurance companies base their premiums on the predicted costs of paying the following year’s claims. The increase in destructive weather events, however, has resulted in insurance costs that far outweigh their predictions. This means that their profits are dropping, so their premiums are rising. This problem affects the entire insurance industry in Australia.

However, the problem is not only a rise in the number of claims but also the higher-than-average cost of these claims. Given that the role of insurance providers is not to absorb the costs of weather disasters but to spread the costs, their only recourse is to either increase premiums or tighten their offerings. SMEs are experiencing both of these options, so what can you do to lower your insurance costs?

How can SMEs lower their insurance costs?

There are three practical measures that could help reduce your premiums, as follows.

1. Increase excess payments

A simple solution is to increase your excess payments because this has the direct effect of reducing your premiums. It’s an elegant solution that can help reduce your immediate insurance costs.

2. Review policies annually

When your insurance is due for renewal, take this as an opportunity to compare different providers. There’s no prize for staying with the same provider if a competitor offers you a better deal, so always review your policies when they are up for renewal. 

3. Talk to an insurance adviser

The job of an insurance provider is to minimise your risks and find the best coverage and pricing matched against your risks. With knowledge of your industry, they help reduce your insurance costs which can increase your operating efficiency.

Given the ongoing rise in destructive weather events, most SMEs continue to experience rising insurance costs. Your best solution is to sit down with an insurance expert and decide how best to assess your risks and mitigate future policy cost increases.

To talk to an insurance specialist today, find your local adviser here. 

Important Information 

This communication including any weblinks or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to constitute personal advice. 

We strongly recommend that you consider the suitability of this information, in respect of your objectives, financial situation and needs before acting on it. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.

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