CSG - an emerging risk on the horizon
The issue of emerging risks is often on the agenda – we spend a lot of time considering where the next round of claims is likely to come from.
One risk we need to carefully consider is the liability implications of coal seam gas (CSG) exploration.
Apart from the issue of who pays for remediating grazing land after drilling has occurred, there is the broader question of the implications for the water tables.
The Great Artesian Basin, that massive underground water supply that occupies an area of more than 1.7 million square km beneath the arid and semi-arid parts of Queensland, NSW, SA and the Northern Territory, is the lifeblood of the nation.
With the potential for CSG exploration to contaminate the water table, we must consider whether insurers will foot the bill when claims are received.
For landowners, does their standard farming business policy cover the risks?
It’s a question we should ponder sooner rather than later.
In the USA, similar issues arise with hydraulic fracturing, referred to as fracking - a drilling process used to extract underground oil or natural gas trapped in hard-to-reach shale rock formations deep in the earth. Litigation has already been launched in the US.
A Nelson Levine de Luca & Hamilton white paper, The Fuss over Fracking, discusses the types of claims the industry can expect from individuals and businesses, and suggests actions insurers should consider when investigating, evaluating and handling the claims. It also considers insurers’ recovery options through subrogation and reinsurance. It is enlightening reading.
Kudos for insurance industry
The insurance industry is heeding the lessons from past natural disasters and getting on the front foot in a far more proactive manner than perhaps it has in the past.
The Insurance Council of Australia (ICA) is to be applauded for quickly establishing dialogue with affected policyholders after the devastating Blue Mountains fires.
An onsite forum covered key aspects of the recovery process for insured property owners, including claims and handling, claims assessment, settlement options, site clean-up and rebuilding, and dispute resolution.
Representatives from ICA, the Blue Mountains Council, the Financial Ombudsman Service, NSW Legal Aid and insurers attended.
ICA Rob Whelan said the event offered policyholders the opportunity to talk to insurance experts about the fires and the recovery process. Bushfire-affected locals could have one-on-one discussions with their insurers about their concerns about their claims and the steps they need to take to help them rebuild their homes and businesses.
In another great initiative, ICA and the Queensland Government signed a memorandum of understanding (MOU) that, among other things, gives insurers full access to flood data.
The MOU established a range of projects intended to help address insurance affordability in Queensland.
The program includes:
- An exchange of data between ICA and the Queensland Government;
- Identifying areas lacking flood mapping data;
- Consultation with ICA on future mitigation planning; and
- Joint research and development into new and better information to help assess extreme weather vulnerability.
These efforts are commendable and help to demonstrate the insurance industry’s willingness to be involved with disaster assistance in a positive way, doing far more than paying claims.
It is always disappointing, though, when politicians jump on the bandwagon and criticise insurers, while concurrently asking them to go beyond their contractual obligations.
Despite the Australian Government Actuary’s 2012 investigation into north Queensland strata title insurance price rises finding historical under-pricing, the cost of reinsurance, and losses caused by natural disasters were the main reasons for cost increases, Queensland Premier Campbell Newman, on a visit to Cairns, said “punitive” premiums were restricting economic growth in the north.
“There's got to be some mechanisms, some policy changes, some rules and regulations for the insurance industry,” Mr Newman told The Cairns Post.
But the Government Actuary’s report was clear – there was no evidence of price gouging by insurers.
Actuary Peter Martin said: “Catastrophe modelling is an evolving science. As each new piece of experience unfolds, insurers will necessarily and inevitably update their pricing assumptions and algorithms. Taking all of this together, it is not possible to guarantee there will not be any future increases.
“Although my analysis suggests prices are now more likely to better reflect the underlying risk than previously, the experience of the past six years would not support a view that prices today are unreasonably high. However, encouragingly, I regard current market conditions as being more likely to attract new insurer participation than at any time during the past few years.”
Merry Christmas and a happy new year to all AILA members; I trust you will enjoy a relaxing festive season, with the opportunity to spend time with family and friends.