Unlike say an earthquake or wind storm, bushfires are one of the few natural catastrophes that can be directly caused by an organisation.

Some of the largest number of the largest bushfires losses in Australia were attributable to electricity assets. From an insurance perspective, the Australian liability market for bushfire risk has been ‘hard’, or at the very least, challenged, for the last 15 years.

Who is the report for?

This report has been designed to inform all stakeholders in the sector (including infrastructure owners, government bodies, and vegetation management operations), by sharing macro and micro perspectives that can improve outcomes for insurance buyers.

Key takeaways

1. Hitting reset on bushfire liability

2022 saw the flattest insurance rate conditions in nearly four years, with a 0%-7.5% increase being the norm. With new insurance capacity entering the market, buyers continue to compete with each other and must stand out from the crowd.

It’s also important to know the specific insurer decision-maker for coverage to avoid head office intervention and approval disruptions.

Question to ask: Are you comfortable with the method, process and market engagement of how your risk is sold to attract the limited insurance capital available?

2. Understand what limit you are buying and why you are buying it

Some organisations obtain conventional limits near or beyond $1bn. However, don’t use your peers’ insurance limits as the benchmark or simply purchase limits like you have always done. Stress testing with reputable catastrophic modelling is critical to understand exposure and to guide purchase decisions. Additionally, make sure you intimately understand the legislative regulatory framework for risk and/or insurance.

Major premium reductions have been achieved, but only through aggressive policy restructuring and for those who procure limits of $500m and below.

3. Explore alternative risk transfer mechanisms

We are observing increasing appetite across the sector to explore alternative risk transfer solutions, although this doesn’t necessarily have to involve a captive. As a whole, more innovative thinking is required to get better outcomes. From wildfire bonds in the U.S. to long-term structured deals secured locally, there is always another way.

4. New technology is reducing the risk of igniting fires, but proving it is another challenge

New technology, such as Rapid Earth Fault Current Limiters, which tangibly limit the amount of energy released when an earth fault occurs on a powerline, is a game-changer for this sector. However, the key is to objectively demonstrate their effectiveness by proving so over a period of time.

5. Increases in retentions are not the answer for insurers

Increases in retentions have not been a focus for insurers. This is because bushfire losses are likely to result in full loss limits of the primary and lower excess layers. This means any chance of self insured retention is offering insurers little protection, so it is not impacting rates (unlike other insurance lines).

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