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Two people died and thousands of properties in the North Queensland coastal city of Townsville (pop. ~168,000) have been flooded, following an unprecedented rainfall event for the region, driven by a very active monsoon trough that is refusing to budge and a slow-moving tropical low dragging moist air down from the equator.

According to the Australian Government Bureau of Meteorology (BoM), Townsville has experienced record rainfall, with 1,153 millimeters (45 inches) – equivalent to a year’s worth of rainfall, falling over a seven-day period up to Monday, February 4.

To add to the city’s problems, on Sunday, February 3, the Ross River Dam at the mouth of Lake Ross, just five miles (eight kilometers) from the center of Townsville, reached 247 percent of its typical capacity, and a record-breaking height of 42.99 meters. With the river running through the city, the dam’s flood gates were opened allowing 1,900 cubic meters of water per second to flow downstream in order to prevent catastrophic dam collapse. Local authorities suggested this could have affected up to 2,000 homes in Townsville. More heavy rain is still forecast for the next few days and while the rainfall rate has eased the event is not over yet.


Slow Motion Monsoon

Such monsoon rains in Northern Queensland during the Australian summer are not uncommon with bursts of wet weather caused by warm, moist air from the tropical ocean drawn towards the lower pressure over the hot and dry north of Australia. However, this event is unique for its intensity and length, with the monsoon trough of low pressure causing intense precipitation and remaining stationary over the region for an extended period.

Despite this, the event follows the warmest January on record in Australia and a delayed onset of the monsoon season, suggesting that flooding could have been significantly worse had similar precipitation followed wetter antecedent conditions from a more typical onset of the monsoon.

How the monsoon trough moves will determine how flooding continues to develop. According to the BoM it has been slowly drifting south of Townsville, but it remains uncertain where it will sit over the next few days. With the current wet ground conditions there is a higher likelihood of additional flooding in the region should there be more intense rainfall.

Sid Loses His Crown

The cause of this event differs from Townsville’s previous record rainfall, when ex-Cyclone Sid resulted in 886 millimeters (34.8 inches) of rainfall over seven days in January 1998; a reminder that when considering flood risk all sources of precipitation must be considered. Australia experiences floods from single convective cell flash flooding right through to continental scale monsoons, and the insurance industry has struggled to create a concise definition of flood.

In the past, while flood caused by falling water – the sudden and excessive precipitation in the vicinity of the insured property – was normally covered, flood caused by rising water (the overflowing of rivers, channels or lakes in the vicinity of the insured property resulting from excessive rainfall elsewhere) was not. However, since 2012 all insurers in Australia have used a standard definition for flood that includes water escaping from a dam, and as understanding of the flood hazard has grown, most insurers have made full flood cover available.

Flooding has not been the only hazard with several crocodile sightings across the city as they seek calmer waters in the wake of the floods.

Higgins AU flood
Crocodile spotted in Mundingburra, a surburb of Townsville on Sunday, February 3. Image credit: Facebook/Erin Hahn

Impact on Insurers

In advance of the event it was suggested up to 20,000 homes could be inundated. Thus far, insurance losses for the Townsville floods in Australia are valued at AUD 124 million (US$88.1 million), from 10,000 claims. However, as residents continue to return home the Insurance Council of Australia (ICA) expects these figures to rise.

Beyond the number of claims several factors will influence the final insured loss for the event. Firstly, insurance penetration. While the majority of home building and contents policies purchased (about 94 percent) include flood, penetration rates in flood prone areas can be quite low with policyholders opting out of flood cover or choosing a policy which does not include it.

Average claims costs are another important factor. A key difference between a flood and other extreme weather events is that it can result in relatively high average claims costs. For example, the average claims cost from the 2010/11 Queensland floods was AUD 45,374 while from Cyclone Yasi it was AUD 15,959 (ICA).

Average claims costs from a flood event are not only a result of the level of flooding but also the vulnerability of the properties impacted. In Townsville, older “Queenslander” style houses are likely to perform better than newer properties, being elevated off the ground and with wooden construction that dries out well. Newer properties in contrast tend to be built slab-on-grade in lower lying areas and constructed with less water-resistant materials.

Additionally, average claims costs from this event may be lower than others. Based on our experience of reconnaissance trips after major floods around the world, summer floods cost less in general than winter, with faster drying of properties meaning reduced additional living expense and business interruption claims. Further, properties in Australia usually lack basements and heating systems which can be drivers of loss in flood events.

As the event continues to develop and claims continue to mount, it is too early to say how losses may develop but the final costs will be a result of a combination of these factors. And with Townsville designated as “Croc Country” – being Crocwise is a way of life here, it will certainly be a relief when the crocodiles return to their homes in the local lakes and rivers.

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From our numerous client conversations, climate change as a business issue has risen high on the agenda, and this has certainly escalated over the last twelve months. There is a growing recognition of the need to quantify the impact that climate change will have on your business. But – where do you start with this? One of the major challenges is knowing what question to ask. With the inclusion of climate change scenarios within the General Insurance Stress Test (GIST 2019), which the larger U.K. insurers and Lloyd’s syndicates are required to respond to, the Bank of England Prudential Regulation Authority (PRA) is outlining one approach. RMS is particularly well placed to support insurers in responding to the “Assumptions to Assess the Impact on an Insurer’s Liabilities” portion of the climate change section within GIST, which examines how changes in U.S. hurricane and U.K. weather risk under different climate change scenarios may affect losses. Stochastic models are the perfect tools to evaluate such physical climate change risk to liabilities, with the ability to reflect changes to the hazard under different climate change views and providing a clear link between cause and effect. Our contribution to the landmark “Risky Business” report in 2014 looking at sea-level rise in the U.S. to 2100 is a key example of this. As such, RMS has developed internally adjusted views of its U.S. hurricane, U.S. flood, U.K. windstorm and U.K. flood models to reflect most of the assumptions and scenarios from the PRA, detailed in the table below: The PRA is asking for the potential impact of these assumptions and scenarios on the Annual Average Loss (AAL) and 1-in-100 Aggregate Exceedance Probability (AEP) loss for all relevant U.S. and U.K. insurance contracts. Getting to a reasonable assessment of these numbers however is not a trivial exercise, requiring the appropriate adjustment of model data in up to 18 possible assumption scenario combinations, and then the analyses of the relevant exposure against these. To help insurers start thinking about how to respond to the PRA request, RMS can provide broad industry-wide factors derived by running industry exposure over the adjusted models. This “Industry Factors Package” will be made available to RMS clients, while others who wish to access these will be able to license them separately. The industry-wide factors will allow for the approximation of losses under the assumptions and scenarios laid out in the table above, however there could be significant limitations to this approach for individual companies and portfolios. Your exposure, or risk profile, will not reflect that of the industry and therefore the application of industry-wide factors may not reasonably reflect your own risk. The uncertainty around this approach means you may decide this is not a satisfactory solution for your submission. For a more detailed bespoke view, we are offering to run insurers’ own exposures through the adjusted models, via RMS Analytical Services, to better satisfy the PRA’s requirements. This “PRA-ready Package” provides unique results for submission to the PRA which reflect your book of business and allow for comparisons with those of the industry. Even if you fall out of the larger U.K. insurers and Lloyd’s syndicates for whom this applies, you should take note. This might be the start of a new wave of analytical rigor around climate change, and more regulators are likely to follow. Beyond regulation, it is also becoming fundamental to understand the impact of climate change for business decisions. For example, to answer what is insurable in 2050 and whether you need to adjust your underwriting and portfolio management strategy accordingly. RMS can assist in getting answers to such questions through a customized climate change consulting engagement as part of an “Enhanced Climate Change Package”, utilizing advanced climate change analytics to provide more detailed results based on the PRA or other similar scenarios. This package can include the PRA-ready results and basic PRA climate change submission information or be a separate engagement depending upon your needs. RMS clients who are interested in these solutions should reach out to their Client Success Manager for details on how they can be accessed, while other insurers can email sales@rms.com. With the submission date of October 31 looming, and many with tighter internal deadlines, it is important not to delay! Indeed, we are already engaging with several clients on how we can help them.…

Callum Higgins
Callum Higgins
Product Manager

Callum is the product manager for RMS Event Response, including RMS HWind, and is based in London. Most recently he has been focused on improving client workflows through the integration of event response with the RMS Intelligent Risk Platform.

Previously, Callum has worked on climate change initiatives at RMS as well as updates to the India Agricultural Model and Australia Cyclone Model.

Callum is a Certified Catastrophe Risk Analyst and holds an integrated master’s degree (MEarthSci) in Earth Sciences from Oxford University.

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