Masterclass on managing hazard risks

By Resolve Editor Deb Eccleston

Managing hazard risk was a recurring topic of discussion at the AILA and NZILA annual conferences.

Not surprising given parts of both Australia and New Zealand were smashed by natural disasters in 2023.

Cyclone Gabrielle – the worst storm to hit New Zealand in a century – caused widespread damage on the north island in February last year. Later in 2023, Australia was hit by Cyclone Jasper and an unprecedented storm – described as a tornado – on Christmas Day.

Both disasters left not only the communities affected reeling, but insurers too as they grappled to provide support.

There was plenty to reflect upon for each panel of speakers discussing the impacts and challenges of natural disasters.

NZ PERSPECTIVE

Hawke’s Bay Regional Recovery Environmental Pou Lead Ceri Edmonds, who experienced Cyclone Gabrielle firsthand in hardest hit Hawke’s Bay, said the cost of the storm was estimated to be $10 billion. Thousands of hectares of productive land and crops and 25 bridges were destroyed, and hundreds of families were displaced from their homes.

Ms Edmonds said the Severe Weather Emergency Recovery (Hawke’s Bay Flood Protection Works) Order introduced in May this year was helping to speed up the recovery process for people severely weather affected.

“I wouldn't say it's exceptionally faster – it's challenging and I would like to think that there are options for improvement and steps through legislative reform, national policy statement and that there's better direction and guidance and speed. Speed is key,” she said.

Geographic vulnerability

Simpson Grierson partner Mike Wakefield said having the ninth longest coastline in the world and many communities living on or near the coast meant New Zealand was “very, very exposed” to natural disasters.

With the risk of natural disasters increasing, New Zealand’s current approach to risk management – where risk is informed by subjective concepts – needed reform. Mr Wakefield cited Waihi Beach Protection Society Incorporated v Western Bay of Plenty District Council and Waterfront Watch Inc v Wellington Regional Council as examples of this “risk tolerance” in action.

He said a new framework that provided new policy direction, increased consistency for risk assessments, coherent frameworks and processes, and coordination and collaboration between industry and government was needed.

“It’s very heartening to hear the Insurance Council of New Zealand was working closely with stakeholders to understand how the frameworks need to be improved to make things easier in this space,” he said.

Dedicated to improvement

Insurance Council of New Zealand (ICNZ) Chief Executive Kris Faafoi said New Zealand’s insurance sector was increasingly proactive and collaborative. As of early September, 96 percent of claims from the Auckland floods and Cyclone Gabrielle had been settled with $3.256 billion paid out.

The cost of those two weather events was unprecedented. Mr Faafoi said before 2023, weather-related losses amounted to between $250-$350 million in a typical year. These events occurring within a fortnight of each other equated to 10 typical years and highlighted the challenges within the insurance sector.

Mr Faafoi said the focus of the ICNZ was on resilience, affordability and regulation.

AUSSIE INSIGHTS

Australia’s experience of extreme weather isn’t confined to 2023, but the events of that year were particularly catastrophic for the insurance industry.

Speaking at the AILA conference, Insurance Council of Australia (ICA) Chief Operating Officer Kylie MacFarland explained there was often a misconception that in communities where the ICA had declared an event, the government had declared an event. But that’s not the case.

“Those two things sit completely separate to each other,” she said.

“What we’re really looking at is how is the insurance industry impacted? What is the impact of media, government and reputation on declaring an event.

“Sometimes it will uplift from a significant event to a catastrophe based on political concerns more than anything else because they're on the ground and see there's widespread community devastation.

“And while there might not be widespread insured devastation, actually the response and the uplift are completely appropriate because it aligns with what they are seeing on the ground and the impact to those communities.”

A proactive approach

Rather than wait for an event to be declared, BMS Group Account Director Ben McKinnie said any time brokers perceive that a weather event is coming, they need to be on the front foot and talking to clients.

“It's really the time to be picking on the phone, talking to clients and asking has your business continuity plan being invoked? Is everyone aware of the next steps? Do you have redundancy power on site? Really trying to get to the forefront of that,” he said.

“I'd certainly be keeping clients up to date when a significant event has been declared just for that extra level of preparedness.”

Caption: AILA panel L-R Jack Fairweather, Chad Vigar, Kylie MacFarlane, Daniel Sirone and Ben McKinnie.

Leveraging insights

Sedgwick Executive General Manager Daniel Sirone said you could anticipate some events and start preparing by gathering lots of data, especially “on the ground insights”.

“Our advantage as loss adjusters is having people spread across the country, so we’re talking to the local time to get real, on the ground insights,” he said.

“There's nothing better than hearing from the people who are being directly impacted and what their assessment is.

“With Cyclone Jasper, one of our experienced leaders was providing very different insights to what the media was providing. So having that insight is really helpful for us – we can feed that back to clients, and it flows into how we plan and prepare.”

Capability to respond

QBE Head of Property Claims Chad Vigar said they monitor the CAT plan and information coming through from the CAT working group and inhouse weather team.

“With earthquakes and hailstorms you don’t know when it’s going to happen and you get a very short period of notice, but with cyclones you can have some type of preparedness for,” Mr Vigar said.

“We have the ability to scale up in our lodgement functions and have a number of people trained in different teams and different divisions who can support, so we’re preparing in the background to get ready to turn our plans on and turn our authorities on for that phase of that process.”

Collaboration is crucial

One of the challenges for insurers is that there isn’t a one-size-fits-all response given every weather event is unique. Mr Sirone referred to the South Australia floods in 2022-23, which they were well prepared for but couldn’t respond to due to the water taking weeks to recede.  

“You can plan to get extra resources in, but sometimes you have to wait for the authorities to give clearance to actually get into the area,” he said.

In those situations, communication is key. Ms MacFarland said many ICA members that lived in affected areas became “the early part of intelligence gathering”.

“Once we’re in, we’re not assessing but we are engaging with communities – at a Mayoral level, at the political level with local government or state members – and looking to get into the community response centres to determine how we can set up space for our members.”

“It’s crucial to have information about the impact of the event, be able to work with governments to understand what the infrastructure losses are as well and work with consumer advocates who are talking to consumers on the ground to understand where the areas of vulnerability are likely.”

Photo credit: AILA 2024 Conference photos supplied warringtonphotography.com.