Rockhampton Hail – A cautionary tale….
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The year 2020 will be hard to forget due to spate of natural catastrophes that significantly impacted the eastern coast of Australia. These natural catastrophes were made up of small to mid-size events, which fall into the definition of a 'secondary peril'.
Swiss Re Institute's latest sigma report looks at the rise of secondary perils and just how severe the impact can be, both from a loss cost, but also in challenging the industry's preparedness and response.
One such secondary peril was the Rockhampton Hailstorm which hit the east coast on 19 April 2020. A severe and destructive hailstorm, it caused significant and widespread damage to commercial and residential properties.
Social media was inundated by videos and photos showing the 'monstrous' size of the hailstones, measuring up to 10cms in diameter. But this isn't just social media chatter; the frequency of hail events with hailstones greater than 9cm has increased over the decades. Up until the 2000s, only 1% of hailstorm events were recorded at 9cms or greater. From 2010 to 2019, this had increased to 3% of events.
And it's not just the size of hailstones that’s been increasing. The frequency of hailstorms has also been on the rise. Hailstorms now make up 12% of all declared natural catastrophes in the last decade in Australia. This is a drastic increase from 1981 to 1990, where they made up just 4% of all declared natural catastrophes1.
Industry caught by surprise
Despite giant hailstones, the Rockhampton hailstorm caught the industry off guard. The claims lodgement and development pattern for this event turned out to be vastly different in comparison to the average hailstorm loss development, and in this instance, with no ICA declaration and no formal reporting on claims numbers and quantum, the expectation was the event would run off at expected levels. The industry relied on standard development patterns to form their initial view and conventional loss development curves suggested it would not become a significant loss event.
The story, however, was far from over. The significant claims development on the event took several months to materialise, compared to the average hailstorm. By mid-year it became clear that the event was far more significant and complex than had been originally expected. ,Insurers were seeing increases in average claim size, far in excess of what would have been expected in this type of event. Claims lodgements started slowly and continued on a stable trajectory for months beyond the normal development.
The average claims size of residential property in Rockhampton Hail was approximately AUD 39,100 – three times that of other recent hailstorm2.
PERILS have since come out with their final estimated industry loss figure of AUD839m, far above their reporting threshold of AUD500m.
- The extensive use of solar panels in the region has likely contributed to the increase in average claims size. Assessment, repair and replacement of damaged solar panels is complicated with very little governance in the industry on best practice.
Property age, roof repairs & building codes:
- 61% of home in Rockhampton were built pre 1980
- The Age of properties led to challenging roof repairs requiring tie-downs and roof frame upgrades
- 92% of roofs in Rockhampton were metal sheeting, which usually requires whole sheet/roof replacements.
- Tiled roofs by comparison are more straight forward requiring specific tile replacement
- Cyclone building codes by the LQD building Construction Committee, require total roof replacement if damage to roof is greater than 20%.
Claims farming/Disaster chasers:
- A significant number of consultants were reported in the area, soliciting for work with reports of misrepresentations to consumers. The impact of these activities was seen in the higher portion of late claim notifications that kept occurring months after the date of loss.
Whilst the event caught the industry off guard, the most important thing was to ensure the industry was there to help the communities get on with the rebuild of the Rockhampton area. The focus shifted to what lessons could be learnt from the event in order to be better placed and prepared for the next one.
The immediate application of the learnings from this event were seen after the 31 October 2020 hail in South East Queensland. Emphasis across the industry was on community engagement and education via multimedia channels. The focus of communication was on the protection of the insured's consumer rights relating to unsolicited contact. The industry came together to promote consistent messaging to ensure consumer protection.
In Australia, 2021 started off with another significant natural catastrophe event, being the March NSW storm and flooding – which could also be defined as a secondary peril. Such events remind us again of the importance of feeding back the lessons learned within the claims community to the pricing/modelling/ underwriting and cat preparedness plans. This approach allows us to look back, in order to look forward.
Swiss Re's Solutions team are actively working with insurers to understand their portfolios in greater detail and assess their exposure to these secondary perils. By understanding their portfolios in greater detail, insurers can take the necessary action to update their pricing and their messaging to clients, ensuring everyone is better prepared for the next event.
1 ICA Catastrophe List, Swiss Re Analysis
2 PERILS, Swiss Re P&C Analytics